HL Deb 16 July 2003 vol 651 cc892-964


The Minister of State, Office of the Deputy Prime Minister (Lord Rooker)

My Lords, I beg to move that the Bill be now further considered on Report.

Moved, That the Bill be further considered on Report.—(Lords Rooker.)

On Question, Motion agreed to.

Clause 16 ["Capital expenditure"]:

Baroness Hamwee moved Amendment No. 32A:

Page 7. line 18, leave out ", or as not being,"

The noble Baroness said: The amendment takes us to the subject of capital expenditure. Clause 16 defines that term and provides that the Secretary of State can, by regulations or direction, provide that expenditure is or is not capital expenditure.

When we debated the clause in Grand Committee, the Minister helpfully explained why it was good for local authorities to treat revenue expenditure—or be directed to treat it—as capital. That will be familiar to local authorities, provided that they have the revenue to treat as capital. Clause 16(2) is interesting—it allows the Secretary of State, in effect, to designate expenditure as capital expenditure or not—when read with subsection (1), which refers to expenditure, which falls to be capitalised in accordance with proper practices".

That is how the subsection approaches the matter.

In Grand Committee, the Minister was silent on the subject of providing for expenditure not being capital expenditure. The draft regulations seem to be silent on the point as well. I hope that the Minister can respond to the amendment, the purpose of which is to probe the Government. Why is it proper for the Secretary of State to be able to direct or, by regulations, provide that any expenditure that, in normal terms—particularly when proper accounting practices are applied—would be treated as capital expenditure should not be? The Secretary of State will need to justify that view, and it is important for local authorities dealing with budgets to be able to assess in advance what is capital expenditure. They should not have the ground taken from under their feet, when the Secretary of State says, "Sorry, chaps. This time round, it's not". I realise that the Secretary of State must be reasonable, but the view should be justified, and it was not justified in Grand Committee.

Before the Minister tells me so, I realise that, for consistency, I should have deleted the same words from the following paragraph. No doubt, the arguments would be the same. I beg to move.

Lord Rooker

My Lords, Amendment No. 32A, as the noble Baroness said, relates to Clause 16, which defines the term "capital expenditure". The clause begins by saying that the term is normally to be interpreted in accordance with proper practices, as defined in Clause 21. Clause 16(2)(a), however, enables that definition to be varied by regulations. The Bill will allow regulations to be used to widen or narrow the accounting definition of capital expenditure. The amendment would remove the power to exclude from the definition any expenditure that is currently treated as capital expenditure.

The power is a continuation of one that has existed under the present system since 1990. It has not been exercised often. The main occasion was when it was used to solve a problem relating to local authorities' investments. Numerous authorities lost money when some commercial banks holding their investments went into liquidation. In due course, they received reimbursement from the liquidators. For highly technical legal reasons, that reimbursement would have counted as capital expenditure for the authorities and would have had an adverse impact on their resources. The regulation-making power was used to ensure that the reimbursement did not score as capital expenditure, thus protecting the authorities concerned. That problem is, fortunately, now in the past, but it illustrates the desirability of preserving the regulation-making power.

Clause 16(2)(b) will enable the same result to be obtained by issuing directions to individual local authorities, but that is not a satisfactory way of dealing with an issue affecting a large number of authorities. I hope that, with those reassurances and the example that I gave of why we need the powers. the noble Baroness will withdraw the amendment.

Baroness Hamwee

My Lords, I am grateful for the explanation and, particularly, for the example. I am sure that the Minister will agree that it would be good if parliamentary counsel could come up with something that, more or less, said "for highly technical legal reasons" and not "as a general matter".

It was useful to have that little exchange. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 18 [Local authority companies etc]:

Lord Hanningfield moved Amendment No. 33:

Page 8, line 33, at end insert— (5) A local authority may make and issue a guarantee in respect of membership of a company incorporated under the Companies Acts either operating in its area or operating as a local authority association.

The noble Lord said: My Lords, in moving the amendment, I would like, first, to thank the Minister for his helpful remarks in previous debates and in correspondence since then on the subject.

The amendment relates specifically to parish councils. I am grateful for the clarification, in Committee, that the power of well being in the Local Government Act 2000 is the appropriate power for such activity by the principal authorities.

Companies limited by guarantee are often used as the corporate vehicle in the voluntary sector and for other partnership working under a number of regeneration funding schemes. Membership of such a company is available only to those persons—legal persons as well as individuals—that are capable of giving a guarantee that, in the event of insolvency and winding-up, they will contribute a stated sum.

Unlike a share where the cash is paid when the share is originally purchased, the guarantee is payable only in the last resort. The inability to give a valid guarantee therefore rules all parish and town councils out of full membership of such companies. Such companies include local regeneration partnerships, some local strategic partnerships which are taking the formal corporate structure and the many local charitable bodies such as rural community councils, councils for voluntary service, citizens advice bureaux and similar. Many parish councils support these active charities in their area and find it somewhat patronising not to be able to take the further step of achieving membership and voting rights. Parish councils are already required to manage risk in accordance with the Accounts and Audit Regulations 2003.

I understand that the Minister is concerned that the sums involved may be significant. In most cases, the amount of guarantee will be of the order of £1, £5 or £10. Even in the case of larger parish councils, the total would be unlikely to reach more than £1,000. The amendment recognises that an overall;knit might be appropriate, perhaps based on the size of the relevant electorate.

The additional situation that the amendment also addresses is the problem of the legal capacity of the national and county local government associations which, as unincorporated associations, face some difficulty in carrying out their daily business. As I am sure noble Lords can imagine, it is not easy to explain the legal structure of an unincorporated association of corporate bodies when trying to open a business account with a high street supplier of, say, computer equipment and consumables. The paperwork assumes an individual or an incorporated company.

I hope that these fairly technical remarks have been helpful in clarifying the purpose and effect of this amendment. I am trying to help the parish councils. I hope that the Minister will confirm that he is willing to look at a more detailed submission on this subject from the relevant bodies, with a view to consider making the necessary changes. I beg to move.

Lord Rooker

My Lords, I hope that I can he helpful in respect of this amendment. Amendment No. 33 seeks to add a new subsection at the end of Clause 18 which would give authorities powers to issue guarantees in respect of companies, subject to certain safeguards.

In Grand Committee, on 4th June, the noble Lord, Lord Hanningfield, moved a similar amendment to Clause 18 about the power of local authorities to become involved in companies limited by guarantee. That debate helpfully clarified that the intention was to assist parish councils. It is not always possible for us immediately to discern the exact purpose behind an amendment. That is a genuine issue. It is not always possible, partly because of protocol, to pick up a telephone in order to clarify the purpose. That Grand Committee debate clarified the intention behind that amendment. However, as the intention was not evident from the wording, my reply did not deal specifically with parishes.

Since that debate, we have, as the noble Lord said, had an opportunity to consider the proposal further. I have written to noble Lords about that. We are clear that the amendment raises important questions about the role and powers of parishes. However, before deciding on legislation, we would need to explore the full implications in consultation with parish councils and their representative associations. I hope that noble Lords will appreciate that, at this late stage in the Bill's progress, it would be impossible to complete that work in time to include a new provision. However, we would be happy to consider separately any further views that noble Lords or parish councils might wish to put to us.

Local government Bills are like buses—one is always coming along. I have no idea what is in the Queen's Speech, but we can be certain that another local government Bill will be coming along fairly soon. I hope that with those reassurances the noble Lord will withdraw his amendment.

Lord Hanningfield

My Lords, I thank the Minister for those comments. I think that the position has been clarified, and we appreciate the help that has been given. I am sure that there will be further discussion, particularly between the local authority associations which represent parish and town councils and other small bodies, so that the position can be clarified in future legislation for their benefit. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.15 p.m.

Clause 26 [Minimum reserves]:

Lord Hanningfield

moved Amendment No. 34: Leave out Clause 26. The noble Lord said: My Lords, as noble Lords will appreciate from previous discussions in Grand Committee, this is a very important part of the Bill, about which all parts of local government have very strong reservations. This clause gives the Secretary of State the power to set a minimum level of reserve for a local authority. It is a power that it is wrong in principle for the Secretary of State to seek to take and it is a power that will be ineffective in practice.

Ministers have said that they are seeking this power as a reserve to enable them to deal with a small number of authorities. I will return to the issue of a reserve power in a moment. First, however, I want to address the question of whether this power will actually do anything to prevent local authorities from getting into financial difficulties in the future.

The Select Committee did not think that these powers would prove effective. It said: We did not receive any evidence that had these particular measures been in place they could have prevented financial imprudence". It would be interesting in the light of that to hear from the Minister under exactly what circumstances these powers might be exercised. However, I note from the ODPM's memorandum to the Select Committee on Delegated Powers and Regulatory Reform that these circumstances, cannot be foreseen at present". So the Secretary of State is taking power which no expert thinks will work, which local authorities and the LGA oppose, and which he is not quite sure how to exercise.

The memorandum to the Select Committee stated that the exercise of this power would be through the negative resolution procedure, as the powers might have to be exercised rapidly". However, as an examination of the Bill reveals, these powers cannot be exercised rapidly.

The Bill does not prevent an authority from running down its reserves to a level below that set by the Secretary of State during the course of a year. The Bill refers only to an out-turn position at year's end. By that time the damage will have been done. We might then have a situation in which local authorities required to meet a statutory obligation at year's end have to scramble around to make the necessary savings. It is conceivable that, under those circumstances, the focus will be on meeting the short-term target and not on the long-term implications for the community or the financial health of the authority.

One can see some extremely painful decisions being taken by local authorities—such as the closure of elderly people's homes, the withdrawal of grants to voluntary bodies, reductions in services—simply to meet a figure stipulated by the Secretary of State. In the long term, breaching this minimum level of reserve might actually save an authority money if the alternative is to take drastic action in the short term to meet it.

That is why reserves are a highly sensitive local issue—a point recognised by CIPFA in its evidence to the Select Committee on the Bill. I wonder how the Secretary of State is going to set the level of reserve and whether he will take into consideration and take responsibility for the effect on services that having to meet this requirement could mean. Local people will find it extremely hard to understand why homes are being closed and services cut because the Secretary of State believes that the authority should keep a certain amount of money in the bank.

Finally, I should like to clarify the Minister's intention in introducing this provision. In Grand Committee the Minister said that this was a reserve power that he hoped would never have to be used. However, he then went on to refer to an Audit Commission paper that suggested that something like 20 per cent of county councils and 30 per cent of metropolitan councils had inadequate reserves. The Minister stressed the word "inadequate". They were, he said, not low levels of reserves but inadequate levels of reserves.

The Minister suggested that the Government would be acting irresponsibly if they did not act on this finding of the Audit Commission in the Bill. If we take at face value those comments from the Minister, then it seems to me that a very large number of authorities are likely to be affected by this provision and that these powers are not reserve powers at all. One thinks of rate capping; it was introduced for one or two authorities but eventually we were all rate-capped. Perhaps he can confirm that having an inadequate level of reserve, as identified by the Audit Commission, will not be the trigger for invoking these powers, in which case it is hard to see how the Government can meet the concerns of the Audit Commission.

I hope that the Minister has listened to the representations I know he must have received from experts on this issue and that he will think again about the need for the clause. I beg to move.

Baroness Hamwee

My Lords, my noble friend Lady Maddock and I have added our names to Amendment No. 34. In a Bill about freedoms and flexibilities, this is perhaps the most indigestible clause. I was looking for an appropriately courteous adjective—having initially written "offensive". Now I have used both. The Select Committee to which the noble Lord referred with regard to minimum reserves was quite clear. It quoted evidence from CIPFA at some length. With regard to the adequacy of reserves, the CIPFA witness said: there is not a general problem". On the issue of specifying reserves and balances, we believe that it is a very local decision and judgment as to the level at which balances should be set. The Select Committee report continued: Some councils may choose to operate with low levels of reserves—provided that they are prepared to take appropriate action as and when necessary". It made the point that: A clear national statement from Ministers about what is an 'acceptable' level of reserves may also make it far harder for individual authorities to deviate from national standards". I thought that was interesting in the light of the Minister's comment in Grand Committee that the Government should like CIPFA's guidance to be followed, but that it is not. Admittedly, he acknowledged that that was in a small number of cases, but it does not seem to lie wholly easily with the evidence quoted by the Select Committee. I confess that I have not read the whole of CIPFA's evidence.

I think that the Minister referred to the existence of balances when he rather critically said that authorities go to their balances in order to meet problems. The fact that they have balances tends to support our view that they are in control and on top of their spending. I made the point in Grand Committee that sometimes authorities build up rather more of a war chest than some people might like to see, but perhaps that is a political rather than a technical managerial issue.

In Grand Committee, the noble Lord, Lord Hanningfield, gave very practical and powerful examples about how reserves can become a sensitive local issue if the authority is scrambling around to make savings at the behest of the Secretary of State. The noble Lord, Lord Smith of Leigh—I am sorry that he is not in his place to add his voice—put it rather well when he asked whether this is a power that the Government really want because it would be very difficult to exercise.

In Grand Committee, the Minister suggested that some of us were paying lip service to what he called a mythical system of democracy. I know that democracy in action is never quite what some of us would like to see. Nevertheless, it is an important principle. The principles of democracy and autonomy are very important to us. They are so important that a clause—the provisions of which we are told are no more than reserve powers, but which could be applied generally and widely or even universally—needs justification, which so far we have not heard.

Autonomy requires capacity building. We were asked for reasons why we did not like this clause. So to give another reason, the capacity of individual councillors and councils is undermined by a clause such as this which states, "Look to central government. We will make sure you keep on the right lines". I support the amendment.

Baroness Hanham

M y Lords, I should like to add to this debate. I do not think that I did in Committee. On recollection from when I was the leader of a council, the advice from our director of finance was that two months' salary was the minimum a council should have in reserves so that there is always money with which to pay the staff. We would have at least that, but my Labour opponents would tell us continually that we should spend all the reserves and that we should not have any. There are variable views on what minimum reserves should amount to and on what they should be based. That is a proper democratic debate. That is how a council and local authority should run.

The questions being raised for the Minister today are: how does one assess what a minimum reserve should be? How or why should it be the responsibility of the Audit Commission to define that? As with all budgetary control, the emphasis for responsibility is laid on the shoulders of local authority members. If they are given the responsibility to do everything else, there is no reason why they should not be responsible enough to decide how much is needed in minimum reserves. The point made by the noble Baroness, Lady Hamwee, is very apposite. I support what my noble friend and the noble Baroness, Lady Hamwee, said.

Lord Peyton of Yeovil

My Lords, I support my noble friend in all that he said. The reason why I pricked up my ears is that I understand this is a reserved power which the Government hope they will never use; it would be convenient to have it. I believe that, as a matter of principle, governments should not be given powers unless they have a fairly clear idea of the circumstances in which they would use them and that they would like to be able to use them for a useful purpose. As I understand this clause, it gives Ministers a power which they do not know if they will ever use and do not know how they would use it if they had to. If I am wrong, I hope that the noble Lord will correct me. But if I am right, it should not be in the Bill.

Lord Rooker

My Lords, in a Bill that is essentially deregulatory and confers freedoms and flexibilities on local government beyond their wildest dreams, I do not really feel that I have to apologise for Clause 26. I should like to say, almost colloquially before I turn to the technical aspect. that it refers to reserves that are required to be put in the budget, but are not necessarily held throughout the year. I do not think that the analogy exists that an old folks' homes might have to be closed in order to maintain the reserves. That does not stand the test. It may be that the reserves are needed to keep the old folks' homes open. That may be what was needed because the budget ran over. There is a defence to be made of this clause and I shall seek to do so.

Clause 26 is a vital element of the financial management framework established by Part 2 of the Bill. Most authorities know that adequate reserves are essential to the smooth provision of local services. The noble Baroness gave an example from her own experience. They are not a luxury or the imposition of the auditor. Authorities have to make their budgets in the face of uncertainty about demands which are sometimes caused by last-minute decisions of government—if I might put it that way. Budgets are made a long time in advance of the year and conditions change. So they do not always know the demands their services will face. Reserves are a means of allowing for uncertainty. Any well-managed authority would wish to be able to deal with uncertainties. Most authorities make sensible provision for reserves, but they cannot work out every eventuality. That is the whole point of the exercise. They do not know exactly what they will need to cover, but they can make reasonable provision on the basis of a responsible assessment of the risks. That is all that is asked of them.

CIPFA's guidance and Clause 25 both reinforce good practice processes for deciding on the appropriate level. But we all have to face the fact that a significant number of local authorities are not making sufficient allowance for reserves. Moreover, as I have said, in the context of the deregulatory effect of this Bill, it is quite sensible for the Government to include Clause 26.

A myth seems to have developed that the clause has been inserted because of the deficiencies of a very small number of notorious cases, so I shall not apologise for repeating the figures. Two years ago the Audit Commission reported that 10 per cent of authorities were considered by their auditors to have inadequate reserves. Last year the figure was 12 per cent. which represents no fewer than 58 local authorities. Some 21 per cent of English county councils were included in that figure, along with 31 per cent of the London boroughs, that is, 10 out of the 32 boroughs. By any calculation, those are significant numbers. Unlike some of the suggestions made in Grand Committee, we are not prepared to dismiss these assessments as auditors being overly cautious so that we may disregard their words. No responsible Government or Ministers could do so, which is why the clause has been included in the Bill.

5.30 p.m.

Baroness Hamwee

My Lords, with the leave of the House, can the Minister tell us what proportion of either the percentage or number of authorities reported as having inadequate reserves ran into difficulties?

Lord Rooker

My Lords, that is not the point. It is hoped that none of them ran into trouble. Even though they were holding inadequate reserves, it is hoped that none did so. The noble Baroness seems to be making the case that if no authority ran into trouble then it did not need the reserves in the first place. That, I think, is a wholly irresponsible approach from someone as senior in local government as the noble Baroness has purported to be throughout our debates.

I do not want to bring in a note of discord, but I was goaded into making that remark. I see that the noble Baroness wishes to speak.

Baroness Hamwee

My Lords, Hansard would not have recorded that I sought to put quotation marks around the term "inadequate". My point was that I wished to draw attention to inconsistencies between what really happens and the inevitable very cautious approach of professional auditors.

Lord Rooker

My Lords, the classic phrase to use in response to the noble Baroness is to say, "If we did not do this and something went wrong, the public in those local authorities would say, 'You saw this coming and you did nothing about it". That would be the charge laid against the Government and we are not prepared to be put in that position.

We have made it clear that Clause 26 will be applied only to councils that are disregarding the advice of their chief financial officers and heading for serious financial difficulty. There would be no blanket minima and the advice given by the chief financial officer and any observations made by the auditor would be taken into account in setting the minimum. The authority would be consulted before the minimum was set.

I turn now to the other myth that has developed about this clause. The suggestion has been made that the minimum applies to the reserves that an authority must actually hold throughout the year. It does not. It applies to reserves which an authority must allow in its budget. Those with far more expertise in local government than I—everyone has far more expertise than I because I have never been in local government—will understand the distinction. Reserves are put in the budget to be used if they are needed to deal with unexpected contingencies that may arise during the year. There is nothing in Clause 26 to stop that happening. That is the whole reason for having reserves and insisting that authorities make adequate allowance for them.

Let me say a little more about why the Government have included this clause. The current concerns I have already outlined, but when the new freedoms and flexibilities contained in the Bill—which have received almost universal welcome—come into force, there will be a new situation. I say to the noble Lord, Lord Peyton, that they represent an absolute bonfire of red tape up and down the country, giving authorities the freedom to borrow, to charge and to trade. However, all those activities involve financial risks. Therefore it is essential that authorities operating the new freedoms have fundamentally sound finances. This is the purpose of Part 2 as a whole, and Clause 26 forms a vital part of that.

In the December 2001 White Paper, in which we announced the new freedoms, we also set out our policy on authorities that got into financial difficulties. We made it clear that in the most extreme cases financial assistance would be available from central government. But in return the Government are entitled to expect that authorities will themselves hold sufficient reserves to deal with less serious problems.

We would like to think that the CIPFA guidance and Clause 25 would be sufficient. We are sure that in the majority of cases that will be so, but the CIPFA guidance has been available since 1995 and we still have the situation described in the Audit Commission reports. Given that, no responsible government, when putting forward the extent of the new freedoms in this Bill, could ignore these concerns. By the way, I believe that this was understood in the other place, where no Division was called on this clause. Members saw this as a quid pro quo for the bonfire of regulations currently in place on local authorities.

Lord Peyton of Yeovil

My Lords. I am interested to hear that. However, I have always suspected that red tape is one of the most non-combustible materials known to man.

Lord Rooker

My Lords, I can assure the noble Lord that the bonfire of red tape goes beyond the wildest dreams of those in local government as regards what they will be able to do with their new freedoms—without government interference or diktat. That is the whole thrust of the Bill and there is wide consensus on it between all the parties concerned in both Houses of Parliament as well as outside in local government. So a major change in local government finance is being brought about, starting, it is hoped, in the next financial year if the Bill receives Royal Assent in time.

This clause represents a modest, technical protection just in case things go wrong in a small number of authorities.

Lord Hanningfield

My Lords, speaking for a moment as a local authority leader, I think that the Minister has exaggerated the effect this legislation will have on the wildest dreams of local authority leaders. If he would like to see a piece of legislation that goes beyond the wildest dreams of local authority leaders, please let me write it for him.

Obviously certain parts of the Bill will allow more flexibility, in particular on borrowing under the prudential arrangement. But I am disappointed that the Minister does not seem to realise that this clause negates a tremendous amount of goodwill that the Government have generated through the Bill. All parties in the Local Government Association regard Clause 26 as offensive and not really necessary.

The Minister said that he does not understand local government finance. When a local authority sets its budget at the beginning of the year, it has to say how much it has in its reserves and how much it expects to have in its reserves at the end of the year. Along with trading, payments and other activities, that is a part of the budget process. Because Essex is a large authority. its reserves as stipulated by the Audit Commission would be around £15 million, which is a lot of money. If we hold £15 million at the beginning of the financial year, we might aim for a reserve of £17 million according to our trading performance. The reserve might rise or fall during the course of the year, but that is the way in which most local authorities operate. That is why we feel that the clause is unnecessary.

The draft Bill appeared some time ago now, and whatever one thinks about comprehensive performance assessments, they have had an effect. I say that because before I came to the House this afternoon, I spent an interesting morning with the newly appointed monitoring auditor from the Audit Commission to my own local authority. During the CPA process, those monitoring auditors now talk to leading authority members and officers about the level of reserves. Indeed, we are given performance stars on it. Whether we like it or not, it is a part of the CPA process. Since we are all striving for more stars—fortunately my own authority has four stars in this respect—that alone provides a new protection. Audit Commission monitoring auditors talk to local authority members about the level of reserves and look at the way the money is being managed.

That is why it is so very offensive that the Government want to take the power in Clause 26 when the Bill is supposed to be a deregulatory measure. I was pleased to hear the new chairman of the Audit Commission say that he would "die for deregulation" and that he wants to see more of it. But this provision means further red tape. It is very disappointing that the Government are persisting with this power, which they keep on saying they do not want to use, but could be used. It should be remembered that if money has to be used to top up the reserve, it has to come out of services. The money cannot come out of thin air. If it is essential to retain the level of reserves, that often means reducing the level of services. We think that that should be a local decision, made with the guidance and assistance of auditor.

Lord Rooker

My Lords, the noble Lord has completely ignored my point. We have made it clear that Clause 26 will be applied only to councils that disregard the advice of their chief financial officer. That is what we are talking about here. I repeat: it will be applied only to councils that disregard the advice of their own chief financial officer.

Lord Hanningfield

M y Lords, apart from two or three authorities that I know of—and I have been involved in this—none has ever done that. Therefore, why do we need this kind of clause in the Bill? I repeat, it is offensive to local government. It is seen as an extra piece of unnecessary red tape when the Bill is supposed to provide freedoms and flexibilities. It would not have received unanimous condemnation from all political parties in the LGA if they believed it was a piece of legislation the Government should put into the Bill. I wish to test the opinion of the House.

5.40 p.m.

On Question, Whether the said amendment (No. 34) shall be agreed to?

Their Lordships divided: Contents, 111; Not-Contents, 117.

Division No. 2
Addington, L. MacGregor of Pulham Market, L.
Alderdice, L.
Alton of Liverpool, L. Mackie of Benshie, L.
Ampthill, L. McNally, L.
Astor of Hever, L. Maddock, B.
Attlee, E. Mar and Kellie, E.
Barker, B. Marlesford, L.
Blackwell, L. Mayhew of Twysden, L.
Blaker, L. Methuen, L.
Blatch, B. Miller of Chilthorne Domer, B.
Bowness, L. Montagu of Beaulieu, L.
Bradshaw, L. Montrose, D.
Bridgeman, V. Moynihan, L.
Brittan of Spennithorne, L. Newby, L.
Brougham and Vaux, L. Northbrook, L.
Byford, B. Northesk, E.
Carnegy of Lour, B. Norton of Louth, L.
Chalker of Wallasey, B. Oakeshott of Seagrove Bay, L.
Chan, L. O'Cathain, B.
Chester, Bp. Palmer, L.
Clement-Jones, L. Peyton of Yeovil, L.
Colwyn, L. Redesdale, L.
Cope of Berkeley, L. [Teller] Rennard, L.
Craigavon, V. Renton, L.
Crathorne, L. Roberts of Conwy, L.
Cumberlege, B. Rodgers of Quarry Bank, L.
Dixon-Smith, L. Roper, L.
Eden of Winton, L. Russell, E.
Elliott of Morpeth, L. Saltoun of Abernethy, Ly.
Elton, L. Sandberg, L.
Falkland, V. Seccombe, B. [Teller]
Ferrers, E. Selsdon, L.
Flather, B. Sharp of Guildford, B.
Garel-Jones, L. Shaw of Northstead, L.
Geddes, L. Shrewsbury, E.
Gilmour of Craigmillar, L. Skelmersdale, L.
Glentoran, L. Smith of Clifton, L.
Goodhart, L. Soulsby of Swaffham Prior, L.
Hamwee, B. Stewartby, L.
Hanham, B. Strathclyde, L.
Hanningfield, L. Swinfen, L.
Harris of High Cross, L. Taverne, L.
Harris of Richmond, B. Thomas of Gwydir, L.
Hayhoe, L. Thomas of Walliswood, B.
Henley, L. Thomson of Monifieth, L.
Hodgson of Astley Abbotts, L. Tope, L.
Hooper, B. Tordoff, L.
Howe of Aberavon, L. Trumpington, B.
Howell of Guildford, L. Ullswater, V.
King of Bridgwater, L. Vivian, L.
Knight of Collingtree, B. Waddington, L.
Lester of Herne Hill, L. Wakeham, L.
Lucas, L. Wallace of Saltaire, L.
Luke, L. Walmsley, B.
Lyell, L. Wilcox, B.
McColl of Dulwich,L. Williams of Crosby, B.
Acton, L. Hughes of Woodside, L.
Ahmed, L. Hunt of Chesterton, L.
Andrews, B. Hunt of Kings Heath, L.
Archer of Sandwell, L. Irvine of Lairg, L.
Ashton of Upholland, B. Jay of Paddington, B.
Bach, L. Jones, L.
Barnett, L. King of West Bromwich, L.
Bassam of Brighton, L. Kirkhill, L.
Berkeley, L. Layard, L.
Bernstein of Craigweil, L. Lea of Crondall, L.
Blackstone, B. Lipsey, L.
Borrie, L. Lofthouse of Pontefract, L.
Boston of Faversham, L. Macdonald of Tradeston, L.
Brennan, L. Mclntosh of Haringey, L.
Brett, L. Mclntosh of Hudnall, B.
Brooke of Alverthorpe, L. MacKenzie of Culkein, L.
Brookman, L. Mackenzie of Framwellgate, L.
Brooks of Tremorfa, L. Massey of Darwen, B.
Bruce of Donington, L. Merlyn-Rees, L.
Burlison, L. Mishcon, L.
Campbell-Savours, L. Mitchell, L.
Carter, L. Morgan, L.
Christopher, L. Nicol, B.
Clinton-Davis, L. Orme, L.
Corbett of Castle Vale, L. Parekh, L.
Crawley, B. Paul, L.
Darcy de Knayth, B. Pendry, L.
Davies of Coity, L. Peston, L.
Davies of Oldham, L. [Teller] Plant of Highfield,L.
Dean of Thornton-le-Fylde, B. Prys-Davies, L.
Desai, L. Radice, L.
Dixon, L. Ramsay of Cartvale, B.
Donoughue, L. Rea, L.
Dormand of Easington, L. RendellofBabergh, B.
Dubs, L. Richard, L.
Rooker, L.
Eatwell, L. Scotland of Asthal, B.
Elder, L. Sewel, L.
Evans of Parkside, L. Sheldon, L.
Evans of Temple Guiting, L. Simon, V.
Falconer of Thoroton, L. (Lord Chancellor) Slim, V.
Smith of Leigh, L.
Farrington of Ribbleton, B. Stone of Blackheath, L.
Faulkner of Worcester, L. Symons of Vernham Dean, B.
Filkin, L. Temple-Morris, L.
Fyfe of Fairfield, L. Thornton, B.
Gale, B. Turnberg, L.
Golding, B. Turner of Camden, B.
Goldsmith, L. Warner, L.
Gordon of Strathblane, L. Warwick of Undercliffe, B.
Goudie, B. Watson of Invergowrie, L.
Gould of Potternewton, B. Weatherill, L.
Graham of Edmonton, L. Wedderburn of Charlton, L.
Grocott, L. [Teller] Whitaker, B.
Hardy of Wath,L. Whitty, L.
Harrison, L. Williams of Elvel, L.
Haskel, L. Williams of Mostyn, L. (Lord President of the Council)
Hayman, B.
Hollis of Heigham, B. Williamson of Horton, L.
Hoyle, L. Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.50 p.m.

Clause 27 [Budget calculations: report on inadequacy of controlled reserve]:

Lord Hanningfield moved Amendment No. 35:

Page 12, line 11, leave out subsection (1).

The noble Lord said: My Lords, this clause lays down in statute a requirement on a local authority to have regard to a report from its chief financial officer when making decisions on the level of its reserves. That takes us back to the argument that we have just had. As I said at the last stage of the Bill's proceedings, of course a local authority will have regard to the views of its chief financial officer on such matters. That is why we employ chief financial officers. We would not employ someone in that role whose advice we did not seek and respect. Frankly, to lay this down in statute seems ridiculous.

I cannot see how these provisions can possibly be effective or warranted in principle. In a spirit of open-mindedness, however, we have put down amendments that seek to work with the Bill and clarify how these provisions will operate in practice.

In Committee, we had a helpful discussion about how the Government intend Clause 27(2) to act as a mechanism for retrospectively reporting on the previous year's finances. However, I remain unconvinced of the need to make this a statutory requirement. The idea that this will not form part of the normal budgetary monitoring process seems naïve.

We must also take into account the fact that, putting to one side sensible budgetary monitoring, the level of reserve for a previous financial year may have no bearing on the level of a reserve that the authority intends or needs to set for the forthcoming financial year. I reiterate the point that I made in Grand Committee. If we are to have this provision, why is it not directed at the levels of reserve that the authority intends to set? I beg to move.

Lord Bassam of Brighton

My Lords, as the noble Lord said, this is an argument that we have been around before, and it is no less relevant because of that. It has a great deal of bearing on the previous debate.

The purpose of Clause 27 is to establish a degree of accountability for responsible budgeting by authorities that have been made subject to a minimum reserve requirement under Clause 26. As my noble friend Lord Rooker explained, that power will he used very rarely indeed. We have already explained that a Clause 26 minimum applies to the budgeted reserves of an authority. The authority is free to make use of those reserves in the year if circumstances require, even if the reserves fall below the minimum.

All that Clause 27 requires is that if, when the authority is deciding on the following year's budget, the chief financial officer predicts that actual reserves in the current year—the year to which the minimum applies—will fall below the minimum, he must report the reasons to the authorities. The purpose is so that the authority can understand the reasons why it has not been able to maintain reserves above the minimum, when it had budgeted so to do. It is a check on those authorities that might deliberately set a budget which will require the use of reserves.

Clause 27 reports will, we believe, be rare events. They should be rare events if the authority is well financially managed. Only authorities subject to a Clause 26 minimum would be required to make them, and so they should be very few. Even then, a report will be needed only if actual reserves at the end of the current year are predicted to fall below the minimum.

The collective effect of the amendments is to require the chief financial officer of every authority to consider whether the reserves for the coming year are inadequate and, if so, to report to the authority. Unamended, the duty in the clause will apply to very few authorities; amended, it applies to every authority. Frankly, I think that is barking mad, and I am sure that noble Lords opposite would see it as utterly pointless. It would duplicate in any event the content of the report that the chief financial officer is required to make under Clause 25. So the provision is there already—the amendment would be replicating something. It is unnecessary, pointless and, in any event, because of the effect of Clause 26, it will not apply to more than a few authorities at any given time.

Having heard the explanation for at least the second time, I hope that the noble Lord will withdraw his amendment; he really should do so.

Lord Hanningfield

My Lords, we continue to have this debate. The noble Lord, Lord Bassam of Brighton, who was leader of a local authority, will remember how involved he was with his financial officers in drawing up reserves for that authority. I repeat: it is common practice. It does not seem right to legislate for something that is common practice. This goes back to our previous debate—the Government are trying to introduce something into legislation which local authorities find unnecessary and more regulatory than helpful. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 36 to 40 not moved.]

Clause 28 [Budget monitoring: general].

Lord Hanningfield

moved Amendment No. 41: Leave out Clause 28. The noble Lord said: My Lords, although we are going over familiar ground, I wish to move this amendment. This clause requires authorities to monitor their budgetary position and take action where they think their budgetary situation is deteriorating. In my authority, Essex, we have a large number of experienced staff who work in our finance and performance department. What does the Secretary of State think these people do all day? I can assure him that at least some of them are monitoring the budget.

As I understand it, one purpose of the clause is to ensure that members are fully apprised of their responsibilities regarding the setting of budgets. But I can assure noble Lords that councillors take their responsibilities very seriously and that local authorities already have competent financial teams that report regularly to members.

I would be extremely surprised if the Minister could name a single authority where there was not regular financial reporting to members. Does he really believe that these days there are local authorities which do not monitor their budgetary position during the year?

We accept that there may be financial problems in some authorities. We do not accept that these problems are caused by ignorance of the budgetary position. That is breathtakingly simplistic. The Bill's provisions are purely cosmetic. As the Select Committee noted, they will have no real impact.

Where local authorities find themselves in financial difficulties, that is largely the result of the interaction of a number of different factors. In some cases, there may be a problem with the processes of financial monitoring, but the Bill does not address such problems. Often the problem is not awareness of the budgetary position, but a lack of political will to take quick and decisive decisions to sort the situation out—perhaps because an authority is hung, for example. I challenge the Minister to name a single authority that has found itself in financial difficulty as a result of no financial monitoring at all.

It is the tone of the clause that is so wrong in a piece of legislation that is supposed to be so wonderful for local government. The Government are passing down their wisdom to local authorities, which actually adopted those practices many years ago. The Government do not need a legislative peg on which to hang good practice guidance. Local authorities are amenable to examples of good practice. We are prepared to take on board new ways of working. Local authorities welcome the opportunity to work with authorities that are not as strong as their own where that is for the benefit of local communities.

Perhaps the Minister is not aware that the authority of my noble friend Lady Hanham was recently awarded a triple A credit rating by Standard & Poor's. That basically puts the financial stability of Kensington and Chelsea on a par with the Bank of England. Yet the Government seem to feel that they have to legislate to ensure that local authorities monitor their budgets regularly. I wish that local authorities could legislate so that the Government monitored their own budgets regularly.

Local authorities operate sophisticated financial systems. They are big multi-million pound—in some cases billion pound—businesses. If the Government really believe that this measure will have any effect whatever in ensuring financial stability, they are mistaken. Rather than building on the lessons of the past, the measure ignores them. I beg to move.

6 p.m.

Lord Peyton of Yeovil

My Lords, I should just like to echo what my noble friend has said. If an authority was remotely responsible and competent, this clause would not be necessary. If, on the other hand, an authority was really slap-dash and very, very careless indeed, I do not think that the clause would have much effect on it. I refresh the noble Lord's memory of subsection (3) of Clause 28 which states: If as a result of carrying out a review under subsection (1) it appears to the authority that carried out the review that there has been a deterioration in its financial position, it must take such action, if any, as it considers necessary to deal with the situation". Presumably, the situation by that time is fairly serious. But, nevertheless, so far as I can see, there is nothing effective that the authority could do. Perhaps the noble Lord will spend a little time explaining to me how useful that subsection would be.

Lord Bassam of Brighton

My Lords, I am grateful to the noble Lord, Lord Peyton, for his intervention. I take up the point he raised with regard to how valuable the subsection is. I believe that it is extraordinarily valuable. I was leader of Brighton, and then Brighton and Hove City Council, for a total of some 13 years. In 1990 we had to implement the nonsense of the poll tax. It was nonsense. I believe that that is now the universal view. A strange alliance of political forces wanted to defeat our annual budget. On the one hand, there was the core of the Labour group and on the other an alliance of what I later described as "Trots and Tories" who were determined to vote down our first budget. The Conservatives thought that the rate set was too high and they wanted to knock a pound off the poll tax, if I remember rightly. The Trots were fundamentally opposed to the poll tax. They defeated our first budget resolution. We were in a state of financial gridlock for 15 hours. We abandoned the council meeting that had gone on through the night and had to meet again the following day to try to secure a budget for the authority.

It would have been extremely useful to have had the clause we are discussing on the statute book at that time as it would have been much easier for me as leader of the authority to remind those colleagues who were playing with the budget of a council that provided services and, therefore, were playing with people's lives, of the potential impact of their intransigence on the financial position of that local authority. I summoned lawyers to talk to both the groups involved in that strange alliance. Some Conservative members resigned their Whip as they thought the position that was adopted was bonkers, and they were absolutely right. That reduced the majority that the Trots and the Tories had. After being faced with what I can only describe as some fairly menacing threats from the lawyers with regard to going ultra vires with the budget, the Conservative members who were becoming increasingly uncomfortable with the situation withdrew their opposition to the budget and let it go through with only the Trots voting against it.

That is one account of an authority in a critical situation at a critical time of change of financial system when the extremely controversial poll tax was introduced. However, I argue that subsection (3) would have been extremely useful in enabling me to remind colleagues of the importance of ensuring that proper monitoring took place, that we stuck to budget resolutions once they were made and that those budget resolutions had a real effect on the viability of the authority and its ability to provide services. At the end of the day, that is what they are there to do.

It is no good saying that that is history because ignorance of the budget position was exactly what got Hackney into a mess during the past few years. It is right that local authority members are reminded, first, of their responsibilities, secondly, how budget processes work, and, thirdly, of the value and importance of carrying out effective monitoring. Clause 28 seeks to enshrine in law a fundamental principle of good financial management. Having heard what has been said on the Benches opposite, I do not believe that there is much disagreement on the matter. I am sure that the noble Lord, Lord Peyton, does not disagree with it. What we seek is not to impose a burden on authorities but to put into place in law, and make it plain in the legislation, that what we require is good financial management. The clause enshrines that.

I say to noble Lords opposite that to argue against the clause is to argue against something which is plain common sense and is included for the good of local government, not to place burdens upon it or to make its life more difficult. I hope that, having heard that explanation, the noble Lord will withdraw his amendment.

Lord Hanningfield

My Lords, I thank the noble Lord, Lord Bassam, for that reply but I am disappointed in it. I try to strike a balance between my love and affection for local government and my duties as a Member of this House. Whatever happens in the future, I intend to try to support local government. I am disappointed that the noble Lord, Lord Bassam, in his response rather neglected his affection for local government. As I said in moving the amendment, local government takes on board the concept that we are discussing. I believe that local government finds it offensive to put a measure in a Bill that is unnecessary.

Lord Bassam of Brighton

My Lords, I will not have it said that I have withdrawn my affection for local government—far from it. It is because I feel strongly that local government should conduct itself well that I believe this clause is an important part of the framework that we have set out in the legislation.

Lord Hanningfield

My Lords, I am afraid that the noble Lord and I must beg to differ on that. The view of the chairman of the Audit Commission, Mr Strachan, is to deregulate. Including such measures in legislation is not, as I see it, deregulation. However, we have debated the issue on several occasions. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 31 [Power to pay grant]:

Lord Rooker moved Amendment No. 42: Page 14, line 29, after "authority" insert "in England

The noble Lord said: My Lords, in moving Amendment No. 42, I wish to speak also to the five amendments with which it is grouped.

These amendments would remove Clause 32 from the Bill which enables a Minister or the National Assembly for Wales to seek any information necessary when considering the award of a grant to an authority under Clause 31. It would also allow Ministers to require retrospective information on the way a grant had been used.

The wording of Clause 32 provides that a local authority must supply such information. Concerns were raised in Committee about the wide scope of this power. In the light of those concerns the Government agreed to look again at the power. We agree that it is too wide. By contrast, Clause 31(3) allows conditions to be attached to the payment of grant. A condition could be attached to the payment of a grant that the receiving authority supply certain information, if ever necessary. Noble Lords will appreciate that it is much more limited in scope being linked to the actual payment of the grant. Having reflected on this, we are therefore happy to remove the wider Clause 32 power from the Bill.

As this would make it unnecessary to retain a separate clause in order to allow the National Assembly for Wales to use the grant-making power, we have also proposed removing Clause 34 and including the provisions of that clause within Clause 31. I beg to move.

On Question, amendment agreed to.

Baroness Hanham moved Amendment No. 42A: Page 14, line 30, at end insert "provided that the grant is available to all other local authorities of the same category on the same terms and those terms have been publicly certified as equitable by the accounting officer of the Department and that all documents and correspondence relating to decision on such grants are made available annually to the Comptroller and Auditor General

The noble Baroness said: My Lords, a number of important points were raised in Committee on the topic of grants as set out under Clause 31. The amendments focus on one particular aspect of that. When I spoke to amendments in Committee, I was aiming to remove what I see as a potential danger in Clause 31—that the clause allows for the possibility of grants being given to favoured councils for undefined purposes.

As I made clear, we already have the Bellwin formula, which allows for specific grants to be given to particular local authorities in response to emergencies. We discussed matters such as flooding, foot and mouth and so on. We therefore do not have any need for the new power, which leaves any Minister, not only the Secretary of State, to make grants to individual local authorities with no specification as to the purpose for which the grant is made. I am riot averse to devolving power to local authorities to use grants for purposes for which they think fit, as is the case with block grants.

Would the Ministers like me to stop while they consult on the matter, or will the reading of the reply be sufficient?

Lord Rooker

My Lords, I apologise if I am disturbing the noble Baroness. Amendment No. 42A does not appear anywhere in my speaking notes, nor in those of my noble friend. It does not appear on the list issued by the Whips Office either, but it is Amendment No. 44, as we have just discovered.

Baroness Hanham

My Lords, Amendment No. 44 was renamed Amendment No. 42A. You tell me. I do not know why either—pass.

I shall start with a problem, which always seems a good way to come back to a matter. My problem with the clause is with the inequality of the situation. Good and excellent authorities may suffer at the expense of badly managed and ailing authorities in terms of the amount of grants that they receive.

We have had a discussion on the principle at least once during the passage of the Bill, and I shall not go through it again. However, the purposes of the grants still remain obscure. The Minister kindly sent me a commentary on the matters raised under all the amendments moved in Committee, and I want to say how much I appreciate that. On Clause 31, it said that it makes it easier, subject to Treasury approval, for government departments to make grants without conditions. That means either that they are general grants that can be used for any purpose—if that is the reason, why are they being distributed under this method?—or that they are grants for specific purposes.

The Minister also indicated that the Government intend to reduce ring-fenced grants to below 10 per cent by 2005–06. That will be welcomed, of course, as the grants come with very stringent conditions and are limited to specific purposes. However, the reduction to 10 per cent will be meaningless if it is counterbalanced by the grants in the clause, as it will mean that only a limited number of authorities receive them.

The inconsistency and inequality in relation to grants to individual local authorities could, under the provisions, be misconstrued as preferential and/or prejudicial. To try to avoid that, the two amendments seek to ensure that grants made under the powers are available on the same terms to all authorities of the same category, under the watchful eye of the relevant department's accounting officer, who would have to certify the grant process and its purpose. Amendment No. 47 would ensure that no grants were made in circumstances where they could be construed as being given political purposes. I beg to move.

The Deputy Speaker (Lord Lyell)

My Lords. we are debating Amendment No. 42A, which the House will see is Amendment No. 44 re-tabled. I hope that that is helpful.

Lord Rooker

My Lords, the mysteries of this place continue to amaze and irritate me, because it is not so precise as the other place. I apologise for disturbing the noble Baroness's speech.

Baroness Hanham

My Lords, the Minister was not disturbing me; I simply thought that he was not listening.

6.15 p.m.

Lord Rooker

My Lords, Amendment No. 42A, which started life as Amendment No. 44, aims to ensure that grants made under the new powers in Clause 31 are available to all authorities of the same category on the same terms, that those terms have been publicly certified as equitable by the accounting officer of the department, and that documentation on grant decisions is passed each year to the Comptroller and Auditor-General.

I understand the need to ensure that the use of that grant-making power is seen to be fair. Treasury approval will, of course, be needed for all grants made under Clause 31. Parliamentary approval will also be needed for the ambit of the department's vote under which the grant will be paid. I also confirmed during discussion in Grand Committee that we will be publishing a list of the expenditure grants made under the clause. The grants so made will set out the amount of the grant and the manner of its payment. We do not therefore see any need to go further and require the arrangements set out by the amendment.

In any case—this is a fallback, because it is a technical issue—the amendment is defective. It includes the expression "same category", which would need to be defined if the amendment were to make sense. It also requires the accounting officer to certify that the conditions are "equitable", which we have to presume means fair. However, we are not certain how the accounting officer would be meant to judge that. The amendment would also limit the use of the power. There will be cases in which it would be appropriate to use Clause 31 to make a grant to one authority only. The amendment attempts to preclude that.

Amendment No. 47, to which we are speaking with Amendment No. 42A, would restrict the timing of the use of the grant-making power in Clause 31 according to the parliamentary and local elections which may occur. That would mean that no grant could be made under the power more than four years into the term of a Parliament, up to six months before any local, regional or European election, while the parliamentary constituency within which a local authority sat was without a Member, or when there was a gap among the members of a local authority to be filled through election or by-election.

That would mean that an authority eligible for a grant, perhaps at short notice, might not be able to receive that grant through absolutely no fault of its own. The Government would be forced to revert to using Section 88B of the Local Government Finance Act 1988—I constantly referred to it in Committee as the poll tax Act—or some other specific power, if it were available. That would be likely to cause delays in the payment of the grant to the affected authority, and affect the flexibility with which the grant might be used.

In the light of those assurances—they are indeed assurances—I hope that the noble Baroness will withdraw her amendment. If the position has not been made clear, we obviously have another opportunity to come back to the matter, but there are assurances. I have given some practical reasons why Amendment No. 47 could not be accepted, and I have pointed to a technical defect in Amendment No. 42A. I do not rest the case on that, but there are issues about drafting amendments to put into law. The issue is not only about "equitable" but how the accounting officer is meant to operate the powers and the requirements in the amendment.

Baroness Hanham

My Lords, could the Minister give some idea of what the grants will be for? We have the Bellwin formula, which already provides for emergency grants. We have specific grants that have always been there, and we hope to see the reduction of them. But what will the grants be for? If we are going to give them to one authority, what is the purpose for that? If they are to be given to all county councils, what sort of grants might be given to county councils that will not be given to anyone else? My trouble with Clause 31 is that I do not see what it will be used for. If the Minister cannot answer me today but could write to me before Third Reading, it would be extremely helpful. He may be able to answer, so I shall bow to his great knowledge and give way.

Lord Rooker

My Lords, I cannot answer, but I should be able to. I should be able to give some kind of example. I have just asked the noble Lord, Lord Bassam, if the notes on clauses offer any clues. I shall certainly write to the noble Baroness because there is an interval between now and Third Reading in which I shall be able to make the position clearer.

It may be that the answer might still be that I do not know, but I shall look into the matter in order to satisfy the quite legitimate question about what the grants would be given for, bearing in mind the fact that there are other kinds of grant. As I recall from our debates in Committee—and I remember my referring there to Section 88B of the Local Government Act 1988—there are some rules about the way in which the powers in Section 88B are used, so we would be seeking to use Clause 31 instead of Section 88B. As I pointed out in relation to Amendment No. 47, if we wanted to give money to the local authority for any particular reason—and that would be known about, because they are not secret grants—we could not do that under Clause 31 and we would have to revert to Section 88B. It is clear that Section 88B will become a second choice for assuming grant-making powers, if Clause 31 reaches the statute book. To that extent, the clause is probably a replacement for Section 88B because of the inconvenience of the way in which that section operates. I will write further to the noble Baroness after today's debate.

Baroness Hanham

My Lords, I thank the Minister for that reply and I thank him for agreeing to let me know. I have been picking away at Clause 31 to find out what it is for. I acknowledge that the amendment is defective. I shall wait for the Minister's letter. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Rooker moved Amendment No. 43: Page 14, line 30, at end insert— ( ) A Minister of the Crown, or the National Assembly for Wales, may pay a grant to a local authority in Wales towards expenditure incurred or to be incurred by it.

On Question, amendment agreed to.

[Amendment No. 44 had been retabled OS Amendment No. 42A.]

Lord Rooker moved Amendments Nos. 45 and 46: Page 14, line 32, leave out "Minister of the Crown concerned" and insert "person paying it Page 14, line 33, leave out "Minister of the Crown concerned" and insert "person paying it

On Question, amendments agreed to.

[Amendment No. 47 not moved.]

Clause 32 [Power to require information]:

Lord Rooker moved Amendment No. 48: Leave out Clause 32.

On Question, amendment agreed to.

Clause 34 [Wales]:

Lord Rooker moved Amendment No. 49: Leave out Clause 34.

On Question, amendment agreed to.

Clause 35 [Interpretation of Chapter 1]:

Baroness Hanham moved Amendment No. 50: Page 16, line 11, at end insert— ( ) No power under this section is to be exercisable in relation to a regional assembly in England.

The noble Baroness said: My Lords, the Minister's reply in Committee to our probing amendment on this matter was short and, if I give him the benefit of the doubt, not sharp, but crisp. He deemed the question as to whether regional assemblies would be able to benefit from the grant regime, by being included in the list of those prescribed as doing so in Clause 35, as virtually irrelevant.

We have agreed on innumerable occasions that regional assemblies are not local authorities, so presumably they are to have a separate funding regime—probably one which is financed by top-slicing the local government grant, although we did not go into that in any depth. However, since the Committee stage, an announcement has been made about regional assemblies and the referendums. Those may now become an entity, if the electorate can be gulled into accepting them. If they do, they will have, as we know, precepting powers.

Can the Minister envisage any occasion where a regional assembly might be the recipient of grant money that would otherwise, or as well, be going to local authorities? If not, will the Minister confirm that regional assemblies cannot, and will not, be included in the list of those authorities able to receive grants under Clause 31? That is the purpose of my amendment. I beg to move.

Lord Bassam of Brighton

My Lords, the noble Baroness anticipated my first line of response, which was to say that the amendment is unnecessary and irrelevant, so I congratulate her on that. This is not the place to discuss the funding mechanism of elected assemblies, but since the noble Baroness has asked about it, I shall try to respond as best I can.

Funding arrangements for the regional chambers and elected regional assemblies have already been made clear. Regional chambers receive a government grant of more than £11 million a year to carry out their scrutiny and planning activities. The White Paper, Your Region, Your Choice, detailed the arrangements for elected regional assemblies, which will be funded primarily through a government block grant. All issues relating to the financing of elected regional assemblies will be properly dealt with by a Bill which sets up those bodies. Such a Bill will be introduced following a "Yes" vote in a referendum about whether to have an elected assembly, and when parliamentary time permits.

Elected regional assemblies will, as we are both now agreed, not be local authorities. They will be new, regional bodies with strategic powers over activities that are currently carried out at regional level by central government, its agencies and quangos. The funding arrangements will be set out in a Bill, which will follow on from there being a "Yes" vote. Funding will not be conducted through Clause 31, because regional assemblies are not local authorities and because there will be separate legislation governing funding.

Baroness Hanham

My Lords, I thank the Minister for that reassurance. I do not think that I need to return to the matter. I beg leave to withdraw the amendment

Amendment, by leave, withdrawn.

Clause 40 [Loans by Public Works Loan Commissioners]:

[Amendment No. 51 not moved.]

Clause 41 [Payments towards local authority indebtedness]:

[Amendment No. 52 not moved.]

Clause 43 [Arrangements with respect to business improvement districts]:

Baroness Hanham moved Amendment No. 52A: Page 20, line 14, at end insert ", and (c) those projects to be financed (in whole or in part) by a levy (an "owner levy") imposed on those holding property interests other than non-domestic ratepayers ("property owners").

The noble Baroness said: My Lords, these amendments relate to proposals to extend the responsibility for contributing to a levy for business improvement districts to owners of land occupied by business premises. Under the provisions of the Bill, the responsibility for making a contribution under a levy would lie solely with the business owner. My noble friend Lord Jenkin, who is unfortunately unable to be here today and offers his apologies, explained in detail in Committee our concerns and those of others—particularly major landowners—that there appears to be a lacuna in the legislation in that there is no provision for owners who are not occupiers, lessors or freeholders to be brought into the statutory scheme. He explained that that was the practice in the United States, where the BIDS concept originated, and that there the liability lay with the owners of properties who, in many cases, passed the cost of the levy on to the occupier through rent reviews and service charges.

My noble friend drew attention to the department's draft guidance on BIDS, in which it was accepted that owners would have a vital role to play in its success, and that there was nothing in the legislation to prevent them from making a voluntary contribution to the scheme. I know that that has already been done in some of the urban environmental improvement schemes around the country. Indeed, many of those schemes would not have left the starting block if such an influential interest had not been readily given. My noble friend drew the Minister's attention to the report prepared by Jones Lang LaSalle for an umbrella organisation for BIDS, known as the Circle Initiative, in which it gave two models for the involvement of landowners and the equitable allocation of the levy.

I shall not go into detail. The Minister will have read Hansard and I know that he listened carefully at the time. But that report and others have demonstrated the real advantage, if not necessity, of the landowners being involved in and committed to the projects. They would give financial and practical support to the schemes proposed, as well as confidence to their business occupiers.

There was something of a spat at the Committee stage when the Minister made it clear that should there be a vote in favour of the amendments being put, he would withdraw Part 4 of the Bill to prevent it becoming part of a ping-pong process. That meant that the Government were not minded to agree to these propositions, their rationale being based in part on whether the levy was a tax; and if it was a tax, their owners, unless they were owner-occupiers, would not be eligible to pay it. That is what I understood it to be about.

During the course of the Minister's long reply, it became apparent that he was not about to concede the principle that my noble friend was addressing. Therefore, some further thought has to be given to this extremely important matter of how landowners become statutorily involved in the bids, and the amendments on the table put forward a viable solution to the problem. One amendment leaves the power ultimately in the hands of Parliament, but delayed until a time of the Secretary of State's choosing, for further provisions to be made to introduce the imposition of an owner levy. The other amendments provide a legislative backing for the administrative detail which would have to be followed.

This is a generous concession to the Minister's problem. It seems likely that the Minister in the other place has had further discussions on this matter with the British Property Federation, although I am not privy to any discussions and I have no knowledge of them. However, it seemed plain from comments on one of the papers sent to me that that was likely to happen. It may be that the Minister has considered views on this and that as a result he will be able to accept our amendments as a sensible, straightforward way of dealing with the situation.

If he will not accept the amendments, any further consideration to include the owners on a statutory basis would mean that there would have to be further legislation. Our amendments would ensure that that was not necessary. The permissiveness to put forward the owners as part of the owner levy and the statutory scheme would appear in legislation.

The Government would have the ability to act on what we believe will be an inevitable consequence of these new and welcome schemes. They will not work satisfactorily without the landowner's involvement. I beg to move.

6.30 p.m.

Baroness Hamwee

My Lords, in Committee, the Minister referred to the arguments of the noble Lord, Lord Jenkin of Roding, as being incredibly seductive. He then went on to explain why that was not enough. However, the fact that they are seductive is important because in respect of such innovative schemes, which will require cash and a commitment to make them work, it is important to win hearts and minds. The other parts of the anatomy can follow. His phrase was therefore appropriate.

I am still having difficulty understanding why a new tax on property occupiers is okay but it is not okay when it is on owners. I thought that his arguments in Committee about administrative difficulties were most telling, but that should not be the driver and certainly not the complete answer. The Land Registry can give us information and I wondered whether the Inland Revenue had been asked to comment on the practicalities of the proposals. It might have useful comments to make.

We are all agreed that the introduction of the scheme is important and we ought to find ways of meeting the requests of property owners. It is extraordinary to have a group which is clamouring to pay a new levy or tax and these amendments, in particular the central Amendment No. 52B allowing regulations to be introduced, are wholly reasonable.

The Minister said earlier today that local government Bills come along like buses, so there will be another opportunity to tack on an issue. The trouble is that sometimes there are long gaps between their arrival, or they are only single deckers when one needs a double decker. The Bill provides the opportunity to enable the extension which is being widely requested. That is why I have put my name to this raft of amendments.

Lord Rooker

My Lords, in introducing my reply, I have good news and bad news. I will let noble Baronesses work out which is which. The role that property owners should play in the business improvement districts, which are henceforth referred to as BIDs, stimulated a great deal of debate in this place in Grand Committee and in another place. We are well aware of the support that exists for including property owners in BIDs on a mandatory basis and we have received many representations from those in the property industry and others to that effect. As the noble Baroness said, it is unusual for people to queue up to say, "We want to be part of a new tax"—or, "We want to be the reason for the new tax".

I can assure your Lordships' House that my colleague, Nick Raynsford, has given a great deal of thought to the views expressed in this House and put to us widely on the subject. While we recognise that property owners will play a key role in developing, encouraging and taking forward business improvement districts, we remain convinced that the Local Government Bill, as drafted, gives property owners ample opportunity to be involved at every stage of the BID process.

The amendments seek to include the property owners in the mandatory BID levy, in the BID ballot and in the appeal procedures. The mechanism for doing this is set out in Amendment No. 52A, which seeks to give the Secretary of State the power to include property owners in BIDs by order.

Clause 45 enables property owners to make voluntary financial contributions to the BIDs. As we stated in the White Paper, Strong Local Leadership—Quality Public Services, there are significant practical difficulties in extending a BID levy to property owners outside the rating system. This would, in effect, he a new tax on property ownership". That is why there is a distinction to be drawn as regards it being the same tax on the occupiers of the property or the owners, mentioned by the noble Baroness, Lady Hamwee. It will not be the same tax; it is a completely new tax.

The Treasury has confirmed that any mandatory levy on property owners would be defined as a new tax. My ministerial colleague, Nick Raynsford, wrote to Ian Henderson, chairman of the British Property Federation, on this issue. I want to quote from Nick Raynsford's letter to clarify the matter for this House. He stated: As you may know, the national accounts are drawn up in accordance with international guidelines (ESA95) which we are bound to follow by law. The ESA95 states that we need to distinguish between transactions in goods and services and transactions that are essentially unrequited or not directly linked to a service received by an individual fee-payer. This second definition is the definition of a tax. The BID levy falls into the second category because the individual paver does not receive an individual service in proportion to the amount they are charged. All ratepayers, and in theory if they were subject to the levy, all property owners, contribute to a collective service or project. They are not paying for a specific product. Therefore in ESA95 terms the bid levy is a tax and will be classified as such in the national accounts". I know that there has been some debate on whether it is appropriate to classify the BID levy as a tax. However, I can assure the House that these are the classification rules by which we are bound and arguments about whether they are appropriate are, frankly, fruitless.

Legislating for a new tax on property ownership would be a significant change to the basis of our current local taxation system. That would be very difficult to justify for the sake of business improvement districts alone when many town centre schemes have flourished on the basis of voluntary contributions from landlords.

We do not consider it appropriate to make such a significant change to local government finance through an order made by the Secretary of State, as the amendments suggest. I realise that they are seeking to be constructive; nevertheless, I am a little surprised that amendments have been tabled which would give order-making powers to a Secretary of State to invent a new tax. I have to say that I would be laughed out of court if this were put to the other place. A brand new tax by statutory instrument? Come off it! I suspect that the Delegated Powers and Regulatory Reform Committee of this House would throw it out hook, line and sinker. Secondary legislation is not the way to introduce a new tax. I must make it absolutely clear that we are talking about a taxation issue. It would be a significant change and, if we were minded to do so, we could not possibly contemplate doing it in this manner.

We remain convinced that BIDs will be successful without the inclusion of property owners on a mandatory basis. The Local Government Bill, as drafted, gives owners ample opportunity to be involved at every stage of the BID process. The draft guidance on BIDs details a variety of different ways that property owners can contribute to BIDs without implementing a new tax.

However—this must be the good news—in recognition of the concern expressed about the success of BIDs, and as a sign of our commitment to their success, we have given an undertaking to review business improvement districts over the next two to three years to ensure that property owners are effectively engaged in the whole process of setting up and administering a BID. If we see substantial evidence that BIDs are failing because property owners are not included on a mandatory basis, then we shall consider ways that that situation can be rectified.

We have not made that undertaking lightly. We are not prepared to commit to including property owners in BIDs on a mandatory basis before we have seen how they work in practice and whether including them would, in the majority of cases, warrant the very great amount of work involved in setting up a brand new tax on ownership, which this would be. We also wish to give other property owners who may not wish to pay the levy and who are probably not aware of the debate which has taken place on this issue the opportunity to comment in full.

We mentioned previously that the administrative burden on local authorities would increase if property owners were included in BIDs on a mandatory basis. It is very important that any collection and enforcement system for administering an "owner levy" is robust and has been consulted on extensively. I gave considerable detail on that matter in Grand Committee. We are not prepared to commit to introducing an owner levy at some point in the future until we are convinced that there is an overwhelming need to do so and that it is possible to find a workable way to administer such a levy.

We intend to review the role of property owners in BIDs as we review all aspects of the BIDs. We shall, of course, focus on the role of property owners. That review will be carried out by the Office of the Deputy Prime Minister and will have three stages. First, it will examine the ways that the pilot BIDs have engaged property owners and how successful that has been. That will begin in autumn 2004.

However, the review cannot simply rely on the lessons learned from the pilots, as they are receiving special support and advice. Therefore, the second stage of the review will examine BIDs which are evolving independently. That will take place throughout 2005, when we expect to see some BIDs established which have not been involved in the pilots.

In Nick Raynsford's recent discussions with the British Property Federation, concerns were raised that, while the property sector may be enthusiastic at the beginning, it may lose interest and withdraw its support during the course of a BID. While we are confident that that will not happen, the third stage of the review will seek to measure the continuing involvement of property owners in BIDs once results from their initial investments are evident. That will happen throughout 2006.

While the Office of the Deputy Prime Minister will be responsible for conducting the review, as part of the evaluation process we shall need to work closely with organisations such as the British Property Federation and the British Retail Consortium to gain feedback on the way that their members have engaged with BI Ds. I understand that Nick Raynsford has already written to the noble Lord, Lord Jenkin, who explained to me why he would not be here today, offering to meet him to discuss BIDs. We would be happy to broaden that meeting to discuss in greater detail the review of the role of property owners.

The Inland Revenue, which we consulted, has advised that it would be necessary to compile a specific list for this purpose. I believe I stated in Grand Committee that I would be happy to give the response of the Inland Revenue to be recorded in Hansard. There is good news and bad news there. The bad news was given first and then the good news. We want to be constructive about this matter.

As I said, we are not in the business of inventing a brand new tax. In any event, we certainly could not contemplate doing so via this route. If it were a new tax, I suspect that it would be brought forward in a finance Bill or a local government finance Bill. But we are not promising to do that or, indeed, contemplating doing so. As I said, there will be a three-stage review process genuinely to analyse the setting up of the BIDS with the ongoing involvement of the property owners. If there were a genuine problem which meant that they could not do what they wanted to do without a mandatory process, and if we could find a practical way to make it mandatory, then we would seriously consider that.

6.45 p.m.

Baroness Hamwee

My Lords, before the Minister sits down, as I understand it, it would be a tax because essentially the property owner would not receive anything in return. Is the Minister aware whether the Treasury has considered the views of property owners through the British Property Federation, who, as I understand it, seem to have said, "We want to be involved and we want to pay because in return we will get added value to our properties". I am not seeking to challenge what the Minister has just said, but I believe it is relevant to the continuation of the debate. The noble Lord may not be able to give an answer today.

Lord Rooker

My Lords, speaking off the top of my head, simply because of the value of the property, I do not believe that that would count in classifying this as a tax. But we shall obviously take advice on the matter if and when we reach the point of bringing in property owners on a mandatory basis. It is hoped that we shall not need to do so; we hope that the arrangements will be a success. But we shall genuinely review the process. I do not want to repeat what I have just said, but we are quite genuine and positive about the approach.

Incidentally, we are very grateful to the property owners, who have been very up-front about what they want to do. I pay tribute to their clarity in this matter, including in their most recent letter to Nick Raynsford just a few days ago. They have been very constructive. However, the Bill is not the way to go forward on this issue and, certainly, this amendment is not the way to bring about a new tax.

Baroness Hanham

My Lords, I am happy to accept that this may not be an ideal way to bring about a new tax. However, it seems to me that that is what happens in the United States. I know that our tax regimes are not the same, but it cannot be difficult to make inquiries about the regime in the United States. Is the US able to tax and include these matters on a mandatory basis? That is what we are talking about. I quite see that the Government will not be able to introduce a new tax system—if, again, that is what it is. The Minister and the Inland Revenue have said that it is. Therefore, I presume that we must accept that.

I believe that leaving out the owners on a mandatory basis is unfortunate. I very much hope that that will not be one of the difficulties in getting BIDs off the ground. The Minister spoke about town centre projects but those are quite different. With BI Ds, one may be looking at a far wider and far larger project than would be the case under what I described as "urban environmental improvements". Without the owners being involved so significantly on a statutory basis, it could be the death knell to the BIDs. That is what I am concerned about. I believe that we all support this concept. We all want to see it work and we want to give it the best possible shot.

A review is a review, and I am sure that that will be good when it is carried out. If it is found to be lacking that will require more tax. We are off down a path and will take years before the landowners will be involved mandatorily. There will be a review and legislation. The amendment was an attempt to provide for something within this legislation which meant that it would not he a requirement, a necessity, and we would not have to go zooming off to find other legislation in which to place a provision.

I have listened carefully to what the Minister said. I thank him for telling me about the meeting with the British Property Federation. I thank him too for the invitation to my noble friend Lord Jenkin, who is not in his place. I shall check whether he can make that meeting at a convenient time. In view of the fact that he is not in his place and has been deeply involved in this matter I should like to be able to take further advice on what the Minister said. However, in the mean time I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 45 [Additional contributions and action]:

Baroness Hamwee moved Amendment No. 52AA: Page 20, line 31. leave out "or required

The noble Baroness said: My Lords, this is to return, I hope not for long, to an issue we touched on in Grand Committee: that is, to remove from Clause 45(2)(c) the words "or required".

In Grand Committee I probed what was meant by those words. As I understood it, re-reading his words, the noble Lord, Lord Bassam, acknowledged that this would allow a change in the vires of public bodies. The requirement within Clause 45(2)(c) arises from BID arrangements, which are subject to Secretary of State regulations. In other words, it seemed to me that if one follows the route through—I raised this in Grand Committee—the regulations would, in effect, indirectly be changing the vires of public bodies. Certainly, I do not seek to preclude the participation of public bodies in that, but is this the correct way to go about it?

The noble Lord and I both felt that we were unable to pursue the matter any further in Grand Committee. I have tabled the amendment again and I hope that the speaking notes will pick up on what I say. I am just trying to pursue the last thing I said in Grand Committee on this subject. I should like to understand what is going on here. I beg to move.

Lord Rooker

My Lords, I hope that by reading my notes, which are the same as those I used in Grand Committee, and which are brief and very precise, I shall be able to satisfy the noble Baroness. There is a good reason for this. It is true that an explanation is needed and I shall give an example.

Amendment No. 52AA seeks to remove the power of the BID arrangements to require voluntary contributions from certain people or organisations. The power to require a contribution to a business improvement district is placed in Clause 45 to give a public body the opportunity to contribute to a BID where it wishes to do so. It is not a mechanism through which a BID can force a public body or. indeed, anyone else, to give a financial contribution where they do not wish to do so.

The BID arrangements will require a financial contribution only where the body concerned has expressed a wish to contribute but would be unable to make that financial contribution unless required by statute to do so. The example I have is very brief.

A police authority may wish to contribute to a BID which is intending to put up closed circuit TV cameras in a town centre. The BID arrangements would then require a financial contribution as otherwise the police authority would not legally be able to make a contribution. In other words, without the word "require", even if the police authority wanted to make a voluntary contribution to the BID, which is clearly a matter in which the police might want to be involved, they would not be able to do so. Therefore, the word "require" is included so that there is a statutory requirement for them to do so within their own legal framework.

Baroness Hamwee

My Lords, I am grateful for that reply. I do not want to be instrumental in stopping public bodies engaging in any such scheme. My point really was to question whether it is right for regulations to be able to change the vires. Perhaps this is an example of benign regulation. I shall not press this further, not least because it requires the consent of the authority to make the payment, although I am not sure that that goes to my argument which is rather technical but, nevertheless, still quite worrying, about whether such things should be allowed in regulations.

Lord Rooker

My Lords, I accept that there is a point here about the joint arrangements and the way the law is set out. But whatever is in regulations, this provision is on the face of the Bill in Clause 45(2)(c). That is clear and unambiguous in statute; it is in an Act—in primary legislation. I do not think that anyone will be able to say, "Oh, they have slipped this requirement in by way of statutory instrument". It is here in primary legislation.

Baroness Hamwee

My Lords, I shall try to draw this to a conclusion. The reason I raised the issue is that, if I read the Bill correctly, the regulations come about because the BID arrangements depend on various regulations. It was that kind of chain that I was pursuing. The provision is on the face of the Bill, but not as required for any particular arrangement. I have now got that off my chest. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 52B not moved.]

Clause 49 [BID Revenue Account]:

[Amendment No. 52C not moved.]

Clause 50 [Administration of BID levy etc]:

Baroness Hamwee moved Amendment No. 52CA: Page 22, line 5, leave out subsection (3).

The noble Baroness said: My Lords, again, this is a matter I probed in Grand Committee and I hope that it will not detain noble Lords for long.

I asked then why it was necessary to limit the power which appears under Clause 50(1) when subsection (2) states that the power includes certain things. I did not feel that the Government's response addressed the point. I am very persuaded by some of the comments made by the noble Lord, Lord Rooker, about the need for consistency and clarity in legislation, so I felt that that gave me the excuse, if one were needed, to try to pursue the point.

I stated last time that I was sorry to be "picky" but that was the job. Sometimes tiny points such as this have completely unintended consequences, so I felt that in one minute, which is all I have taken, I should put the point again. I beg to move.

Lord Rooker

My Lords, again, equally briefly, I repeat what I said in Grand Committee. This is a standard drafting formula. There is nothing new about this.

Clause 50 gives the Secretary of State the power to make regulations concerning the administration and collection of the BID levy. During the debate on this amendment in Grand Committee I was asked why Clause 50(3) is necessary when subsection (2) is an indicative, not an exhaustive list. The inclusion of subsection (3) is a standard drafting formula to make sure beyond doubt that the general power in Clause 50(1) is not limited by the specific terms set out in Clause 50(2).

Where, as in Clause 50(2), a list of terms is given, but there is no provision equivalent to subsection (3), the list in subsection (2) will read as an exhaustive list of the areas in which the Secretary of State may make regulations.

Amendment No. 52CA would restrict the Secretary of State's power to make regulations to those items listed in Clause 50(2). That would mean that the Secretary of State would not have the power to introduce an entirely new system of collection and enforcement for the BID levy.

We have always made it clear that we intend to administer the collection and enforcement of the BID levy through the existing non-domestic rating mechanism. However, we want to retain the flexibility to create a different system if the experience of early BIDs suggests that the arrangements are not working. The amendment would remove that flexibility, hence the reason we need subsection (3) as part of Clause 50.

7 p.m.

Baroness Hamwee

My Lords, I am grateful to the Minister. We spent some time in Grand Committee on the Fire Services Bill on the eiusdem generic rule. That was too painful an experience for me to repeat. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 51 [BID proposals]:

[Amendments Nos. 52D and 52E not moved.]

Clause 53 [Power of veto]:

Baroness Hanham moved Amendment No. 53: Page 23, line 3, after "notice" insert "no later than three months from the date of the ballot

The noble Baroness said: My Lords, Amendment No. 53 is a small amendment. It would make it obligatory for a billing authority, if it was going to veto a BIDs proposal, to give notice within three months of the veto taking place. It may seem quite odd to put in a time definition, but people sometimes do not notice time passing. It must be right that there is a time limit by which these decisions must be made and notified, so that the people who have voted for the proposal know of what that decision is.

I cannot imagine that many local authorities would not give notice within such a time, but perhaps those that were still requiring a minimum reserve might be a little more dilatory about these things. Therefore, we should have a time limit. I beg to move.

Lord Bassam of Brighton

My Lords, Clause 53 gives a billing authority the power to veto a business improvement district. The noble Baroness has moved an amendment which limits that to three months after the BID ballot has taken place. That is fair enough and we agree.

We believe the amendment is unnecessary. Clause 53 already gives the Secretary of State the power to prescribe the time period in which the veto can be exercised in secondary legislation. This means that the time period in which the veto can be exercised can be altered to reflect the experience of BIDs once they are up and running. That is a very important part of the flexibility that we are trying to achieve in the BIDs framework.

If we prescribe the time period in which the veto may take place in primary legislation before we have any knowledge of the way in which BIDs will work in practice, we will be unable to alter the time period to reflect the experience of developing BI Ds. So we think it would be counter-productive. This flexibility is the general approach we are taking with most of the legislation.

I imagine that the noble Baroness is seeking reassurance that the local authority will not be able to veto a BID a year after a successful vote has taken place and when the BID would or should already be in operation. The Secretary of State intends to prevent that from happening and to use these powers to do so.

In any case, before the BID proposal is voted upon, the local authority should have been working with the BID proposers and pointing out any areas of concern. So we hope in any event that the veto will be exercised very rarely. I cannot see many circumstances in which a group, which has taken the trouble of creating a BID, does not properly involve the local authority in it and so creates a situation in which the local authority feels obligated to exercise this veto. We see vetoes as only rarely happening. So the power is already there. We want to retain a flexibility in terms of the time period so that we can see how BIDs work in practice. If we were to go with the amendment that the noble Baroness proposes, I am sure that she well and truly understands that it would mean we would have an inflexible proposition written on to the face of the Bill. We think that would make it far less workable. The thing about BI Ds is to enjoy the beauty of the way they express themselves in the myriad of different ways.

Baroness Hanham

My Lords, how very poetic. I hear what the Minister says. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 55 [Commencement of BID arrangements]:

[Amendment No. 53A not moved.]

Clause 56 [Duration of BID arrangements etc]:

[Amendments Nos. 53B and 53C not moved.]

Clause 57 [Regulations about ballots]:

[Amendment No. 53D not moved.]

Clause 60 [Wales]:

Lord Rooker moved Amendment No. 54: Page 25, line 21, leave out from beginning to "to" in line 22 and insert— ( ) Sections 56(7), 57(4) and 58(3) do not apply in relation to Wales. ( ) In their application in relation to Wales (a) the remaining provisions of this Part have effect as if for each reference in those provisions

The noble Lord said: My Lords, if Clause 60 is not amended in this way, it effectively means that the statutory instruments relating to the business improvement districts produced by the National Assembly for Wales would have to be laid in Westminster for scrutiny. Given the fact that the National Assembly for Wales has perfectly adequate procedures of its own for scrutinising statutory instruments, we should not be doing that here. I beg to move.

On Question, amendment agreed to.

Lord Phillips of Sudbury moved Amendment No. 55: After Clause 63, insert the following new clause— Relief for charities and community amateur sports clubs (1) In section 43 of the 1988 Act (occupied hereditaments: liability) for subsection (6) there is substituted— (6) This subsection applies where on the day concerned the ratepayer is—

  1. (a) a charity or trustees for a charity and the hereditament is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities): or
  2. 928
  3. (b) a community amateur sports club within the meaning of Schedule 18 to the Finance Act 2002 (c. 23) (relief for community amateur sports clubs) and the hereditament is wholly or mainly used for the purposes of that club or of that and any other such community amateur sports club or clubs."
(2) In section 45 of that Act (unoccupied hereditaments: liability) for subsection (6) there is substituted— (6) This subsection applies where on the day concerned the ratepayer is—
  1. (a) a charity or trustees for a charity and it appears that when next in use the hereditament will be wholly or mainly used for charitable purposes (whether of that charity or of that and other charities): or
  2. (b) a community amateur sports club within the meaning of Schedule 18 to the Finance Act 2002 and it appears that when next in use the hereditament will be wholly or mainly used for the purposes of that club or of that and any other such community amateur sports club or clubs.""

The noble Lord said: My Lords, we debated the equivalent of this amendment in Grand Committee for three-quarters of an hour on 11th June. For those who want to read the debate, it is at cols. GC 156 to GC 168. On that occasion there was ne'er a contrary voice. Dare I say that the Ministers opposite exhibited a certain sympathy for what the amendment seeks to achieve? I beg noble Lords' pardon; I can see heads shaking vigorously.

I do not propose to rehearse the arguments put in Grand Committee. First, I must say that both the noble and right reverend Lord, Lord Sheppard of Liverpool, whose name was on the amendment and, indeed, the noble Lord, Lord MacLaurin, are unavoidably prevented from being here tonight. The noble Lord, Lord Weatherill, whose name is on this amendment, has just been required to rush off and deliver a speech in lieu of a Peer who has fallen ill.

More germanely, the reason I am not going to—I was going to say "rabbit on", but I should say—"proceed at length" is that, because this clause has money consequences, there is an onus on us to try and clarify and make as certain as possible what is the cost of this proposal. I refer not only to the direct cost to the Treasury but to the indirect costs societally; for example, the potentially benign consequences of the amendment in terms of a typical small sports club, thereby having extra funds available to increase facilities, which draws in more members and which takes young tearaways off the streets into creative engagement, and so on.

As I say, we have a duty to the House to go as far as possible towards clarifying just what are the pros and cons of this in direct and indirect financial terms. The noble Lord, Lord Moynihan, has his name with mine on the amendment. We both concur that it would be advantageous to have discussions with the Treasury, if possible. More than a fortnight ago, I wrote to the Chancellor of the Exchequer suggesting discussions. It is no reflection at all on him, except his workload, that that has not yet borne fruit. But I should like to think that by Third Reading we shall have reached the end of the line—realising that the end of the line will still be a series of estimates. Therefore, although I shall now move the amendment, I wait to hear whether the Minister can accede to it before going any further. I beg to move.

Lord Pendry

My Lords, the most recent—indeed, the only—White Paper on sport, published in 1975, attempted in a fashion to consider the problems of voluntary sports clubs. Unfortunately, its conclusions were woefully short of what was needed to address the problems. The introduction stated: In the present circumstances, it would be unrealistic to issue any statements of Government policy or intentions for sport and recreation without indicating the extent to which action is likely to be inhibited by our present economic difficulties … It would be clearly wrong to exempt recreation from whatever financial constraints it may be necessary to impose in the light of the developing economic situation". I took part in the debate that followed that White Paper, and I found it greatly depressing. However, a few months later, I found myself to be a Minister in Northern Ireland with an economic brief and a rating order that I inherited from my predecessor. My first deputation as a Minister was from a very angry Sports Council for Northern Ireland. I let it put its forceful case to me, tore up the rating order and said, "Let's start again". As many will know, the result of that is that we have mandatory rate relief in Northern Ireland for voluntary sports clubs at 65 per cent.

Some argued and may still argue that voting for the amendment, if it proceeds to a vote, would create a precedent. I tell my noble friend the Minister that that cannot be argued. He now knows that the precedent has already been set—although not at 80 per cent but at 65 per cent. As the noble Lord, Lord Phillips, said, we all know that the main obstacle in matters of this kind is generally the Treasury. But I hope that the Chancellor of the Exchequer, whom we all know to be a bit of a sports fan, will carefully consider the amendment. I am sure that he would calculate that a relatively small amount of money would go from the Treasury coffer. I am sure that we could all—even my noble friend—argue the benefits of sports clubs to society. They cannot be judged on mere economic terms.

I congratulate the noble Lord, Lord Phillips of Sudbury, on his efforts on the issue over the years. I also congratulate the Central Council of Physical Recreation, the noble Lord, Lord Monro, and, in particular, the noble Lord, Lord Moynihan, first, on his promotion to shadow Minister for Sport; and, secondly, on the contribution that I am sure that he will make today. I must say that I prefer him to be in opposition as shadow Minister for Sport than to be the Minister, although I do not say that in any detrimental sense. Indeed, I shadowed him when he was Minister for Sport for some years. I should also like to thank others whom I shall not mention for all that they have done to fight for sport clubs.

I applaud the Government for pumping record amounts of money into sport. Last week's announcement by the Minister, Mr Miliband, about expanding the specialist sports programme was commendable. However, it is often voluntary sports clubs that pick up where schools leave off and to which kids go when they leave school. We must consider them in this debate.

In brief, it makes sense for me to support the amendment, although it would be to go against my Government. I hope that it will not come to that, because we are not in the same kind of economic climate as we were when the 1975 White Paper was issued. Thanks to the state of the United Kingdom economy—this is where I pander a little to the Chancellor of the Exchequer—thanks to my right honourable friend's running of the economy, we do not have the bleak economic backdrop that we did then.

So I hope that my noble friend, who I know is really sympathetic to the new clause, will reflect before Third Reading and ensure that we have a sensible provision based on the amendment. I look forward to listening to my old sparring partner, who will make a valuable contribution to the debate.

7.15 p.m.

Lord Moynihan

My Lords, it is always a pleasure to follow the noble Lord, Lord Pendry, who continues to make a remarkable, lasting and exceptionally positive impression on the world of sport. Only today, he was leading an important discussion about coaching in this country. Over decades, not just years, his contribution has been outstanding. I listened to everything that he said and it is a privilege to follow him in the debate.

As advocates of the amendment. we on these Benches start from a strong position, because, in Committee, the noble Lord, Lord Rooker, opened well on 11th June. He said: I should like to say that I have just heard five brilliant speeches in favour of a brilliant amendment … It is supported by Conservatives, Liberal Democrats, Labour Members and Cross-Benchers". For that alone, I would vote for the Minister as parliamentarian of the year. But he should have stopped there, because he was clean bowled by his officials straight after, when he said: I am on a hiding to nothing … I come with the had news that I cannot accept the amendment, but nevertheless, I agree with every point made in those speeches".—[Official Report, 11/6/03; col GC 162–3.] This evening, neither I nor other noble Lords intend to repeat the valuable exchanges that we had in Committee. However, I should like to place on record my appreciation for the outstanding work done on the subject by the noble Lord, Lord Phillips, and for his contribution this evening. I share his concern about the importance of a reply to the letter from the Chancellor of the Exchequer. I am conscious that further discussion with the Treasury team would be beneficial before we decide whether it is appropriate to test the will of the House. I therefore also recommend that we return to the subject armed with the Chancellor's reply and following further consideration at Third Reading.

Lord Evans of Parkside

My Lords, briefly, I strongly support the amendment. I am the trustee of a large community and sports club in the village in which I live that provides sport for the entire village: tennis, rugby, soccer, badminton and bowls. A huge number of sports are provided and the whole village uses that club. I know how difficult and bizarre it is to try to reach agreement with the local authority about discretionary grant. Often no explanation is given why one club receives a 100 per cent grant; another 50 per cent; and a third nothing whatever. Indeed, some authorities appear as a matter of principle to have decided not to give any grant to anyone, no matter how deserving the club.

The amendment is sensible. In effect, it will provide 80 per cent grant to all clubs without further ado. The amount of money involved is miniscule in Treasury terms, but the benefits that would flow it would be felt the length and breadth of this country. I strongly support the amendment; if my noble friend does not accept it—I recognise that his hands are tied by the Treasury—I sincerely hope that it will be pressed to a Division.

Lord Faulkner of Worcester

My Lords, I, too, am very pleased to support the amendment. I was not able to take part in the Grand Committee debate, hut, like the noble Lord, Lord Moynihan, I read with great interest and some amusement the Hansard report of the debate. It was not only the five speeches that my noble friend Lord Rooker described as brilliant; he also described the amendment as brilliant in the first half of his remarks.

It cannot he right or fair for voluntary sports clubs to be treated the same as businesses when applying business rates. I applaud the Government for making it easier for sports clubs that manage to become charities to qualify for relief, but that route is not available to all voluntary clubs. Many find dealing with the Charity Commission an absolute bureaucratic nightmare. According to figures supplied by the CCPR, only four clubs a month apply to the Charity Commission to change their status in that way.

It is a pity that the Government have not accepted the amendment so far; perhaps they will this evening. If not, I hope that I may hear from my noble friend that the Government will be prepared to move their own amendment at Third Reading to give effect to these laudable and important changes.

Lord Bassam of Brighton

My Lords, it is time for a confession. As some noble Lords know, I play cricket at weekends. I am the only genuine non-batsman in my cricket team; I am a regular "tail-end Charlie". This evening I feel that I am definitely a "tail-end Charlie" in having to deal with this matter. I have heard the arraignment around your Lordships' House on the issue. If I was nodding earlier, noble Lords can probably take it that I have a great deal of sympathy with the amendment. However, as one noble Lord said, we are rather hamstrung. Clearly, we need to consider further the points that have been made.

The noble Lord, Lord Phillips, has not yet had a response—as he said, understandably—from the Chancellor of the Exchequer to his correspondence. I am sure that those matters are important to the Chancellor. He has legislated to try to assist sports clubs, so he is very conscious of the need to assist voluntary sporting organisations.

The noble Lord, Lord Pendry, has introduced an important new element to the debate. I confess that I was not aware of the 65 per cent mandatory relief in Northern Ireland. I would be very interested to know of its effect. It probably has some useful bearing on what might be possible. It is also worth considering the point made by the noble Lord, Lord Faulkner, about the small number of clubs—four a month, he said—coming forward to register as charities. At that rate, it will take many centuries for all sports clubs to benefit from the charitable provision. All sports clubs remain eligible for 100 per cent rate relief at the discretion of the local authority. That can be a top-up to the small business relief being introduced through this legislation. So there is a benefit to be gained.

When I was the leader of my local authority, the treasurer and the finance director got irritated when I became rather more generous on the voluntary relief that we could give. They thought that I was throwing away good money. Having heard all that has been said, all that I can usefully do from the Dispatch Box is say that, as Ministers, we will do our best to secure a meeting to see whether we can take the matter further. I recognise the strength of feeling: there is passion behind this amendment. Without wishing to go overboard or to raise the white flag from the government Benches, I think that there is a serious issue to pursue. I say that without commitment to concede to the amendment—I cannot possibly give that.

Recognising the scale of the issue and the problem that part of it entails, I hope that noble Lords, who spoke understandably with a keenness to see the matter pursued this evening, will feel able to withdraw their amendments on the promise of our trying to secure further discussions over the summer. We shall see what more can be done to assist, as we recognise the value of community amateur sports clubs. Many of us have participated in such clubs at different times in our political career. We want to see them strengthened financially so they can perform the valuable work that they have carried out over many years, raise standards and perform better as clubs. We very much share the spirit of the movers of the amendment. Those remarks are not in my brief, but it is my considered view. I hope that noble Lords will find it of some value.

Lord Phillips of Sudbury

My Lords, I am most grateful to the Minister for what he said, and to other noble Lords for their contribution to the short debate. I rebuke myself for not having congratulated in my opening speech the noble Lord, Lord Moynihan, on his shadow appointment. I am sure that everyone interested in sports will be encouraged by the fact that he, too, has his own record in sport.

I wish to make one last point to the government Bench. The Government created this opportunity by introducing community amateur sports club tax exemptions. They created that new category. In a sense, it is rather odd that we, the opposition, are telling the Government, "Carry home the advantage that you have already made". It seems bizarre that, with all the political will that was necessary to do that, and with expectations of consequences that have not been fulfilled, the Government will not now take the extra step that would crown the achievement that is already there. In that spirit and with some further summer sun, I hope that it will not even be necessary to vote when we return in September. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Rooker

My Lords, I beg to move that further consideration on Report be adjourned during pleasure until 8.15 p.m.

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

[The Sitting was suspended from 7.27 to 8.15 p.m.]

Clause 64 [Calculation of non-domestic rating multiplier]:

Baroness Hanham moved Amendment No. 56: Page 28, line 25, leave out subsection (3).

The noble Baroness said: My Lords, this amendment and those that follow—Amendments Nos. 62 to 66 and Amendment No. 76—were dealt with in Committee by my noble friend Lord Caithness. I know that he has written to the Minister to apologise for the fact that he cannot be here today.

In a letter to the Minister, my noble friend asked a number of questions to which I hope the Minister will respond in this debate. My noble friend Lord Caithness was briefed, as I have now been, by the Royal Institution of Chartered Surveyors, and I am grateful for its help.

Amendments Nos. 56 and 57 would remove the provisions for the small business non-domestic rating multiplier while retaining the small business rate relief itself. Research suggests that rates are a disproportionate burden to smaller businesses. The Government's proposals to introduce small business rate relief may help to alleviate some of that burden. The characteristics of the proposed small business rate relief system for England, as far as details are known, are, however, causing concern to those businesses.

The first principle is that small business rate relief, which is applicable only to properties of a rateable value of less than?8,000, will be funded by a surcharge on other commercial ratepayers whose rateable value is above the threshold. My first question is, why? If the Government are satisfied that there should be a rate relief scheme, should they not fund it from the Exchequer?

There is also concern about the £8,000 rateable value figure. It is presumed that it is based on the 1998 values rather than a guide for the 2003 valuations. As my noble friend Lord Caithness said in his letter to Minister, since 1998 rental values have increased by about 20 per cent, even in the current market in which there has been a downturn. Therefore, a more realistic upper threshold would now be in the region of £10,000. Even at that level the properties affected may well be limited. In his response, will the Minister deal with the question asked by my noble friend in his letter of 1st July as to how many small businesses would benefit if the threshold was £80,000, how many at £10,000, and how many at £15,000, based on the 2003 valuations?

This matter has been dealt with in Scotland where an amicable agreement seems to have been reached with the Scottish Parliament, which I am hoping we can emulate here. The original proposals were similar to those in this Bill—a threshold of £8,000, with businesses over £10,000 paying a surcharge of 2.75 per cent to fund the rate relief.

The arguments deployed in Scotland were: that thresholds were inherently bad because they created unfairness and that any scheme should be tapered; the level of relief was far too low and many deserving businesses in town centres and all licensed hotels would not get relief; the threshold for surcharge was far too low; and all small hotels and pubs and most high street traders had to pay a surcharge of 2.7 per cent.

Agreement was reached in Scotland on a better scheme. There, rate relief is now stepped. Relief is given to all businesses in premises with a rateable value of less than £10,000. It is estimated that that figure is probably still too low. A surcharge of 1.3 per cent was added to businesses with a rateable value of more than £25,000, to fund the relief. I am grateful to the Forum of Private Business in Scotland for that information, which goes to show what can be done.

We are concerned at the unrealistic level of the threshold and believe that it should be increased or tapered. We are concerned at the surcharge level on businesses above the £10,000 level, and we believe that the Exchequer should provide the resources for the relief. I beg to move.

Lord Rooker

My Lords, I suspect that, in dealing with the amendments in this way, I may not be able to answer all of the noble Baroness's questions. Some may impinge on others. For part of the reason, one need only look at Clause 64. It is probably the longest clause that I have ever seen; it runs to four pages. I realise why. That is not a criticism, but it is an incredibly long clause. Given the way that the amendments are split up in my speaking notes, I shall confine myself purely to the effects of subsections (3) and (4), which are, in a way, the subject of Amendments Nos. 56 and 57.

Since 1990, there has been a single rate poundage or multiplier for the whole of England and one for the whole of Wales. Clause 64 provides for two multipliers in future in England. There will be a small business non-domestic rating multiplier and a non-domestic rating multiplier. When a small business rate relief scheme is run under Clause 63, the non-domestic rating multiplier will be set at a higher level than the small business rating multiplier. The addition is equal to the estimate of the cost of small business relief. The addition to rate bills of those not receiving relief will be small. As we said in the White Paper, Strong Local Leadership—Quality Public Services, it will be less than 2.5 per cent.

Subsection (3), which Amendment No. 56 would knock out, inserts a new paragraph 3 into Schedule 7 to the Local Government Finance Act 1988. It explains how the small business non-domestic rating multiplier and the non-domestic rating multiplier are calculated for financial years in which the list is not compiled. Subsection (4) inserts a new paragraph 4 into Schedule 7 of the 1988 Act. It explains how the small business non-domestic rating multiplier and the non-domestic rating multiplier are calculated for financial years in which the list is compiled—that is, revaluation years. Amendment No. 56 would delete subsection (3), and Amendment No. 57 would do the same for subsection (4).

If the subsections are deleted, there will be no small business non-domestic multiplier. In other words, there will be no power to place a supplement on larger businesses to pay for the small business rate relief. Small business rate relief will fall to be paid for by the general taxpayer or by local authorities who, via the regulations dealing with contributions to the rates pools, may be forced to raise council tax to pay for it. The amendments would not modify Clause 64: they would wreck it and, along with it, Clause 63.

It would be impossible to fund the English rate relief scheme through a small supplement on the bills of other ratepayers. It would also be impossible to adjust the English and Welsh multipliers—whether up or down—to offset the effects of a revaluation which had not been fully provided for when originally setting the multiplier at that revaluation. We believe that the small business rate relief scheme we devised for England strikes a fair balance between the interests of small businesses which will be receiving the relief and other ratepayers who will be funding it.

We have been researching the figures that the noble Baroness asked for, but have not been able to produce them in an intelligible form. Therefore, I shall write to the noble Baroness, who made a legitimate request. I regret that I have not got the figures. In respect of Amendments Nos. 56 and 57 and the effect of knocking out subsections (3) and (4), I hope that I have satisfied the noble Baroness about the purpose of those subsections and why they need to remain in the Bill.

Baroness Hanham

My Lords, I thank the Minister for his reply. On hearing the word "multiplier", my eyes glaze over. I have not understood any of the pages in the Bill containing "A plus B divided by 6 times whatever". But never mind, perhaps we shall sort that out later. I am not totally certain that the Minister's reply addressed the questions. One question concerned the level of the threshold. The Minister kindly said that the scheme had been thought through carefully, but the burden of the complaint is the low level of the threshold being at £8,000. Everything else flows from that. I was posing that that threshold should be raised to at least £10,000. With all that multiplier bit I am not sure whether the Minister responded in words that I could understand. That may not be his problem; it is probably mine.

Lord Rooker

My Lords, this gets more complicated. Not knowing the average rateable values of various properties, I am not going to say anything off the top of my head. To be honest, we cannot provide the figures because we do not know how many properties will fall within the various thresholds following revaluation and how many of those properties might not be eligible because they are multiple properties. I refer, for example, to telephone masts.

We will be conducting research on the actual numbers that will be affected in April 2005. As soon as the figures are available for the valuation agency in this research we will be analysing the number of businesses that might be affected. We will also consider at that time—this is why it makes sense—whether the £8,000 threshold remains appropriate. In a sense, that is helpful because, not knowing what the distribution is after the revaluation, we cannot give the figures. Once we have done the research, it may determine whether the £8,000 figure is appropriate. If it is not, we will consider what to do about it.

Baroness Hanham

My Lords, I thank the Minister for that reply. I just want to ask a question out of ignorance. If it was decided that the £8,000 threshold was not appropriate at that stage, can that be amended by order to both Houses of Parliament without the Minister having to come back for new legislation" If it can be done that way, that seems to be not wholly unreasonable. I understand that the Minister is probably reading his notes and they do not always coincide with mine.

Lord Rooker

My Lords, that is true in a way. Sometimes I do not know the full purpose behind the amendment and therefore the noble Baroness asks questions. I cannot find the figure but I would be astonished if the £8,000 figure was not in an order. I would be absolutely astonished. Therefore, one would not need primary legislation to change it. I am told that it is done by order.

Baroness Hanham

My Lords, I am not sure that we are not breaching all the conventions of the House. I thank the Minister very much for his reply. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 57 not moved.]

8.30 p.m.

Clause 66 [Transitional relief]:

Baroness Hanham moved Amendment No 58: Page 33, line 8, leave out "be the same as or different from" and insert ", subject to subsection (10A) below, be less than hut no greater than

The noble Baroness said: My Lords, in moving Amendment No. 58, I shall speak also to Amendments Nos. 59 and 59A. We return to amendments which were moved in substantially the same form in Grand Committee, again by my noble friend Lord Caithness. We are returning to them because of the concern that has been raised that the Government's whole approach to these provisions is far too inflexible.

In short, the amendments would provide a process which would require the Secretary of State to abandon downward transition; to propose a scheme of transition of his choice for those facing increased rate bills; to ascertain the cost of such a scheme and then, in effect, to amortise the total cost of the scheme over the life of a rating list by way of an addition to the national non-domestic rate to be paid on all non-domestic properties, irrespective of whether they are in an upward or downward direction. The effect would be revenue-neutral over the period of a rating list and would give businesses a much clearer and more stable position from which to budget for these costs. I have taken all that from the letter sent to the Minister by my noble friend Lord Caithness. I am confident, therefore, that a reply will be forthcoming.

The amendments would also remove the unjustifiable current position of imposing downward transition. The whole question of rating revaluation on businesses has been fraught for years since revaluations can produce quite large changes in rates liability. Therefore transitional relief has been used to cushion ratepayers against the largest increases through staging changes in rates liability over a number of years in order to recoup some of the revenue lost due to this capping of increased bills. I recall the legislation that brought all this about. Not many understood it at the time and probably not many understand it now, but it is still with us and so we continue to have to deal with it.

A transitional penalty has been imposed on those whose bills should be falling and their reductions have also been capped and phased in. The Exchequer has previously made up the balance of revenue loss due to transitional relief. However, as I have already indicated, the Bill requires that future transitional schemes should be fully self-financing from within the rating system to avoid the need for Exchequer support. It is notable that this policy was criticised by the House of Commons Select Committee which scrutinised the draft Bill.

It seems morally indefensible to deny immediate reductions for those whose bills should be going down. It is often these businesses, whose relative property values have fallen, which are in the greatest need of reduced rate bills, yet they have been required to pay a premium to protect successful businesses from full increases. Amendment No. 58 would strike out the use of downward transitional payments. Amendment No. 59 would allow for flexibility to establish alternative transitional arrangements to be implemented with greater simplicity and fairness for ratepayers and at the same time protect revenue for the Exchequer. Amendment No. 59A would require the Secretary of State to propose a scheme of transition of his choice to those facing increased rate bills, as I described earlier. Undoubtedly there would be a shortfall in revenue for the first year or two following revaluation. but it would be recouped in the latter years of the revaluation cycle.

These proposals have already been criticised by the Government as being less intelligible to the business ratepayer and involving a subsidy from the general taxpayer. However, the amendments would provide for a five-year, self-financing scheme without Exchequer funding. We believe therefore that that criticism is unjustified and that they would minimise confusion. I beg to move.

Lord Rooker

My Lords, we debated this issue in Committee and I suspect that my reply today will he quite similar. I hope that it will answer the noble Earl's letter. If it does not, it goes without saying that, having written a letter, the noble Earl will get a reply anyway.

Clause 66 ensures that there will be a transition scheme to accompany any future revaluation. Businesses have stressed the necessity of transition schemes accompanying future revaluations. The details of a future scheme will be decided in the run up to the revaluation concerned but, as stated in the White Paper, Strong Local Leadership—Qualhy Public Services, any future transition scheme must be self-financing. There is no reason why the general taxpayer as opposed to the ratepayer should meet the cost of transition relief and, therefore, Clause 66 requires that the total rate yield for any year is not to be affected by a transition scheme.

The clause allows for flexibility in how schemes may be structured so as to be self-financing. The methods likely to be used include having a transition scheme that balances the rates lost through phasing in increases in bills against the rates gained by phasing in decreases. But, besides providing for a scheme which balances rate income lost through phasing in increases and rate income gained through phasing in decreases, the clause allows for an addition to rate hills generally as a means of making good the loss of rates resulting from phasing in increases in bills. That was all one sentence by the way. It has to be. It makes sense when you read it.

The clause also allows for a scheme that is funded by a combination of phasing in decreases and an addition to rate bills generally. This will allow us to put in place a fair and workable scheme.

If, as seems to be proposed by Amendments Nos. 59 and 59A, a scheme were to be revenue neutral over a five-year period instead of year by year as set out in the Bill, there would have to be a way by which the Treasury could recover in later years what it had paid in the early years. The Exchequer would also need to recover interest on what it had paid out in the early years of the scheme and would need to recover a sum to offset the effects of inflation between paying out the sums concerned and recovering them. All this would make for complicated calculations which would introduce uncertainty for ratepayers. A five-year revenue neutral scheme would be much more complicated to operate and far less intelligible to the ratepayer than a scheme which was revenue neutral year by year.

Furthermore, it is difficult to see any reason for such a scheme. Why should the general taxpayer in effect give a loan to ratepayers at the start of each transition scheme? An attempt to make a scheme revenue neutral over the five-year life of the list would mean that at each revaluation complex estimates would need to be made in advance of announcing any transition scheme. If at the end of the fourth year it was discovered that the Treasury had not recouped the money it had contributed in the early years, rate bills would have to be increased to balance the scheme. This would create uncertainty for the ratepayer.

Finally, Amendment No. 58 is designed to ensure that if over the life of the transition scheme it turns out that the scheme is in fact not revenue neutral but is producing a loss in rate revenue, the losses cannot be made good by adjustments to the scheme. In effect, the general taxpayer would have to make good the shortfall in funding for local government. However, if a scheme is not revenue neutral in that it is producing too much in rate revenue, the amendment allows for the scheme to be adjusted to recompense ratepayers. We made the point in Committee that this represents a one-way traffic flow that is very unfair to the general taxpayer.

As currently drafted, the Bill would allow for a transition scheme to be adjusted both if it was producing too much or too little in rate revenue. That is entirely fair. The noble Earl raised this point in Committee and I am surprised that the amendment has come hack in much the same form. It is unfair and would be quite indefensible to the general taxpayer.

In the light of what I have said, I hope that the amendments will not be pursued. Obviously Third Reading awaits.

Baroness Hanham

My Lords, I thank the Minister for that reply. I understand that there are different ways of looking at how these transitional arrangements take place. But the inherent unfairness in the system as it stands is that people's contributions do not go down in the same way as their rateable valuations go down; they go down only in a transitional way. People with a lower rateable value who consequently have a lower payment are still paying at a higher level. People whose valuations go down are still contributing to people whose rates are increasing, because they are providing the transitional schemes. That seems inherently unfair from the outset. I can recall business ratepayers complaining to me about the scheme when it was originally introduced. I am bound to say that it was not the current Government who introduced it. So we receive complaints from both sides.

Our proposal for a different transitional scheme does not seem unuseful, but I see the Minister does not agree with me. I beg to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 59 to 59A not moved.]

Clause 68 [Exemptions for agricultural buildings]:

Baroness Hanham moved Amendment No. 59B: Page 34, line 33, at end insert— ( ) For paragraph 2(1)(a) (which defines agricultural land) there is substituted— (a) land used only or mainly as arable, meadow or pasture ground,".

The noble Baroness said: My Lords, in moving this amendment, I shall speak also to Amendment No. 59C. This brings us back to the question of the initial designation of agricultural land for the purposes of exemption. It also brings us back to the definition of agriculture to include game farming and the definition of agricultural buildings.

We went through this issue at our last Committee sitting. I would not have brought it back if it had not been for the fact that the people who are concerned with the countryside were not at all happy with the Minister's response. He will not be surprised to hear that. There are grave concerns, particularly about the description of what amounts to game and the definition of rearing birds.

Amendment No. 59B deals with using agricultural land either solely or mainly for agriculture. If that amendment is made, it would, as we discussed extensively in Committee, facilitate what purpose that land could be used for that would still leave it with a rateable value.

At present, land used exclusively for agriculture is exempt from non-domestic rates. Agricultural land is defined as land used only as arable, meadow or pasture ground. There is a de minimis exemption permitting land to be used, to a limited extent, for other purposes which still enables it to qualify for the exemption. The Valuation Office takes this as being activities that do not last for more than one day at a time without an intervening period of agricultural use. So, by way of an example, one day's point-to-point will not prevent the exemption from applying. I daresay that a one-day pop concert, which is one way of raising money, would not either.

This may have been satisfactory when a farmer was only a farmer and did not need to use his land for anything else, but it does not reflect present realities. Few farmers, as we agreed last time, are able to make a living purely from their activities without having some amendments made.

Amendment No. 59C, which follows this grouping, refers to "game birds". I should like to pick up a point made in a letter to the Minister from the Country Land and Business Association, which is not clear about what the Minister said in an earlier debate. It is trying to ascertain the difference between when game birds are farmed, when they are shot and when that constitutes an area for rateable value.

The letter states: We are unsure of the basis for your statement during the Committee stage debate that for business rate purposes, guinea fowl, pigeons and quails are classified as poultry".

This is a very important point and I am sure that the Minister wants to be clear about it. It is important for townsfolk to be clear about the matter. The letter continues: Contrary to what you [the Minister] said, this is not reflected in the relevant schedule. It is our understanding"— that is the understanding of the Country Land and Business Association— that there is no clear definition as to what constitutes 'game' for these purposes. Certainly the courts have never given a clear statement. However, it is apparent that the farming of pheasants and partridges is not exempt and it is with these birds that we are principally concerned. In any event, we can see no justification for the present state of affairs. In our view, the operations carried on at a game farm possess all the characteristics of a conventional poultry farm, that is birds are bred, reared and cared for in a commercial context and as such game farms should be treated in the same way as poultry farms. All the principles of livestock management followed by game farmers are the same as for poultry and the industry is subject to all the same laws.

The Minister said in Grand Committee, No one involved in game production for food will pay rates … They do not have a problem—they will be rate-free".—[Official Report, 16/6/03; col. GC 183.]

The association further states in its letter: We agree that this should be the case, the fact the birds are killed by shooting rather than any other method is immaterial, unfortunately though it is not a correct statement of the law as it stands".

There is clearly confusion about whether farming of game birds is exempt. I beg to move.

8.45 p.m.

Lord Rooker

My Lords, I am grateful that the noble Baroness has returned to this issue. I did not recognise the quotes from the letter of my friends in the Country Land and Business Association. My noble friend has ascertained that the letter was received only today. I am not conscious of either seeing or replying to it. It will receive a considered response.

As regards the noble Baroness's remarks about the countryside, I think that I am the only MAFF Minister ever to get a really positive mention on "The Archers". That was in 1998. So my country "cred" is pretty solid, believe you me. I shall not say what it was in connection with as all the animal lovers will be after me. I was trying to save cattle, if I can put it that way, but badgers were in the way.

We shall obtain clarification with regard to the letter. I do not have detailed notes on it. I gave a correct statement from my brief with regard to definitions. If the matter has been questioned, we shall have to take another look at it.

The intention of Clause 68 is to extend the rating legislation to reflect modern farming practices and also to ensure that the exemption from rates is properly targeted in relation to ancillary activities such as food processing and packaging operations where occupiers of related agricultural land control the company.

The Local Government Finance Act 1988 exempts from non-domestic rates agricultural land and buildings used for the production of food and the rearing of livestock for food. Agricultural land or buildings used for other purposes, such as the rearing of animals for leisure or sport, farm shops or food storage are not exempt and are liable for rates.

The tabled amendments, which I suspect are very similar if not the same as those tabled in Committee, would broaden the meaning of agricultural land in Schedule 5 to the Local Government Act and have the effect of opening up the rating exemption to activities that are not exclusively connected with farming. That would give farmers an additional competitive advantage over other new or established rural businesses.

If the purpose of the amendments is to facilitate minor diversification by farmers, I should point out that the Government introduced a rate relief scheme for that very purpose on 15th August 2001. The rate relief scheme for farm diversification was designed to help farmers diversify into small-scale nonagricultural activities by partly offsetting their rate bills for an initial period of up to five years. Farmers are now able to move into a whole range of activities, some of which will be in competition with existing business and others in totally new markets.

The relief is available to new enterprises on farms and, as it is aimed at small-scale enterprises, gives 50 per cent rate relief provided that the rateable value is £6,000 or less and the premises were in agricultural use for at least 183 days in the year prior to 15th August 2001. Local authorities also have the power to increase the relief up to 100 per cent if they think that it is in the interests of their council tax payers to do so. The relief is time-limited and will be available until 14th August 2006, although there is provision to extend that if there is a need.

In the light of what I have said, I hope that the noble Baroness will withdraw her amendment. I will make sure that we get a substantive reply to the CLA well before Third Reading. That will allow amendments to be tabled if needed in the full light of the Government's detailed response to the letter.

If food production is not the prime purpose, the exemption does not apply in the sense that I have explained it. I thought that I had said that in Committee, to be honest. However, I am philosophically very sympathetic to the issue. As I explained in Committee, I had not realised where the relief was, due to the definition of some game birds as opposed to poultry, but that has been the law for a considerable period and is not up for grabs for a major change in terms of the Bill. That is a matter for Defra rather than the ODPM.

Baroness Hamwee

My Lords, is the Minister aware that the herd in "The Archers" has a problem with TB again? He could spend a bit of the Recess helping them to sort it out. He cannot possibly be aware, so I shall tell him, that he has enabled me to half-win a bet. I suggested to a friend that I would try to get a reference to "The Archers" into our debate on Section 28, given that it is also a current issue in "The Archers". I bottled out, but he has enabled me to get "The Archers" into Hansard tonight.

Baroness Hanham

My Lords, I am not going to join in the talk about "The Archers"; I have enough trouble with the amendments. I recognise that the Minister has given virtually the same response as we received in Committee, with which the Country Landowners' Association and others were not happy. I shall have to make sure that they see the Minister's response as he promised. We shall try to ensure by Third Reading, if necessary and if there is still concern, that I come back on the issue, but not, I hope, with exactly the same wording and detail. I thank the Minister, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 59C and 59D not moved.]

Baroness Byford moved Amendment No. 59E: Page 34, line 38, leave out "solely in connection with" and insert "mainly to add value to

The noble Baroness said: My Lords, I am delighted to be in the House tonight to participate in the debate. Amendment No. 59F is grouped with the amendment. I listened carefully to the Minister's remarks about my noble friend's earlier amendment. I shall speak to Amendments Nos. 59E and 59F together. The amendment would establish a better definition for those who have farm network attractions on their property. The amendment is slightly different from the other amendments. I know that the wording is inadequate, but I was seeking a dialogue with the Minister about the concerns of some of the people who are in the farm attractions network business. I declare an interest as a patron of their group.

The law is sometimes interpreted in one way by one local authority and in a different way by a subsequent local authority. The amendment would bring some clarity to the law. Although the Minister has said that the issue is a matter for Defra and should be addressed by his noble friend, it is relevant in this context, because farmers are being asked to diversify. The amendment of my noble friend dealt specifically with the question of food, but some farm network attractions also have food premises. They may run visitor-centre cafés or restaurants on an informal basis. However, their difficulty is that when they apply for rate relief, some local authorities deal with them in one way and some in another. I have tried to think of words that could be added to the Bill. Quite a few farms have diversified. For example, about three years ago, an apple grower in Kent was not making enough money from her apples and was facing redundancy because no profit was being made. Thanks to a grant from Defra, she now processes and bottles her own apples and sells them as a finished product.

I know that the Government are keen to encourage diversification and that is why I am moving the amendment. I have used the words "mainly to add value to". I am seeking some form of kick-start for those farmers, rather than an ongoing commitment. Will the Minister clarify whether, in the Acts as they stand, exceeding a certain value determines whether they qualify or whether it is a question of turnover? I can offer him two examples of different local authorities interpreting the law differently. My wording is clumsy, but I hope that the Minister will accept that I have tried to raise a very important issue.

If the main income of a 150-acre farm, for example, has been from land produce, and the farm has diversified to become a visitor centre, the visitor centre, in some ways, now earns more than the crops grown on the farm. Some authorities are judging the farm as a whole and that is the reason for my first amendment. The phrase "mainly to add value to" will perhaps help distinguish the farm from the shop. The shop may be selling produce from that farm or, because the farm is being encouraged to act as a cooperative, there may be others who are using the farm as a base. I know that it is a grey area. I will be happy if the Minister goes away to think about it. I am not pressing him tonight.

I understand that the Rating (Former Agricultural Premises and Rural Shops) Act 2001, which followed the foot-and-mouth outbreak—and I am grateful to the Government for bringing that forward—will last for only a six-year period. The Minister will perhaps correct me if I am wrong. I understood that rating relief was given to farms and their businesses that fell within the parameters of the instructions laid down, but that it was not a long-term measure. At the end of the six-year period, which will be 2006, they will be not entitled to that kind of financial help. That is why I am putting the proposal forward.

My Amendment No. 59F is an inadequate way of defining what is small or acceptable. What size of land or business does the Minister believe would entitle people to help? It was difficult to put forward a figure, but I would be grateful for clarification. Under the present rating system, is help limited to the hectare or acreage, or to the size of the operation? Having looked back at the Acts, I cannot define it. I have tabled the amendment to try to bring an important issue to the notice of the House. It is intended to help those who are diversifying, something the Government are encouraging. I beg to move.

9 p.m.

Lord Rooker

My Lords, before responding to the amendment, I want to reply to the noble Baroness, Lady Hanham, just in case her lobbyists look at Hansard and say, "Hang on a minute, something is not right here". I did not respond to Amendment No. 59C because of the way in which they appear in the groupings list. Amendments Nos. 59C and 59D were grouped separately, Amendment No. 59C coming in the second. The noble Baroness, Lady Hanham, raised the issue of game farms. There is no question about that. Anything I had to say in more detail on Amendment No. 59C would not have helped because it would not have answered the letter to which she referred. I shall ensure that the full details of the response to matters raised by the CLA appear in the reply.

I did not intend to be discourteous—it was just the way in which the amendments were listed. Of course, Amendment No. 59C was not moved and before we knew it the noble Baroness, Lady Byford, was in the Chamber—having missed the previous debate, I might add, because I regret to say that I must now repeat myself.

Amendment No. 59E seeks to extend the rating exemption for agricultural buildings to any building which is used "mainly to add value to" agricultural operations carried on that or any other agricultural land, provided that it is occupied together with agricultural land. Amendment No. 59F attempts to extend the rating exemption for agricultural buildings to any buildings used mainly in connection with agriculture, provided that they are under 250 cubic metres.

The intention of Clause 68 is to amend the rating legislation to reflect modern farming practices and also to ensure that the exemption from rates is properly targeted in relation to the ancillary activities such as food processing and packaging operations where occupiers of related agricultural land control the company.

The noble Baroness mentioned co-operatives. During the brief time I was at MAFF—a couple of years—I understood that English farmers compared with our partners in continental Europe are notorious for failing to work in a co-operative way. They do not work in the same way as French, German and Spanish farmers in co-operatives. That point has always been made and I freely admit that there is no easy solution to that.

Amendments Nos. 59E and 59F are designed to give an advantage to farmers. However, the noble Baroness must accept that that advantage is over other local businesses. That is axiomatic. It naturally follows that if they have rate relief on all the premises connected with their main agricultural operations, provided that the premises are small, that could be perceived to be unfair. The first amendment does not place a restriction on size, but if the second amendment were to be accepted, a farmer occupying a shop in a village under 250 cubic metres would not have to pay rates on the property. That would put him at a competitive advantage and would be detrimental to other local shops. Those shops could be similarly affected as part of the community during problems experienced by the farming industry, such as during the foot and mouth crisis and so on.

For some time the Government have tried to encourage farmers to diversify. With regard to the point referred to by the noble Baroness, on 15th August 2001 we introduced a rate relief scheme designed to help farmers to diversify into nonagricultural activities by partly offsetting their rate bills for an initial period of up to five years.

As I said in the previous debate, the relief is available to new enterprises on farms and is aimed at small-scale businesses. As such, it gives properties 50 per cent rate relief, provided the rateable value is £6,000 or less and provided the premises were in agricultural use for at least 183 days in the year prior to 15th August 2001. Local authorities have the power to top that up to 100 per cent if they consider it to be in the interests of their council tax payers. I do not know who does and does not do that, but that is up to local authorities.

As the noble Baroness said, the overall relief is time limited and will be available until 14th August 2006. I do not know the detail of the legislation but there is provision for the date to be extended at that time if there is perceived to be a need. Therefore, while there is an end date, that date can be extended. We believe that that gives aid to farmers. It does not give them everything that everyone wishes, but it certainly makes a contribution to farmers who wish to diversify without causing other local businesses to be disadvantaged.

I freely admit that it is extremely difficult to draw up a scheme specific to farmers and agricultural land that, if they are to diversify and add to the value of the work on their farms, does not in some way affect other local businesses. But I certainly hope that farmers will take the maximum possible advantage of everything that is going for them.

I realise that there are rules to follow and I am well aware of the burden that sometimes exists. But I know that Defra and other departments are trying to reduce that burden. It is not our intention simply to place burdens on businesses, whether they are run by farmers or anyone else. But I would certainly encourage people to use every possible avenue that is available. It is only by doing so that a case can ever be made for either extending or renewing a scheme.

That point was raised earlier in the debate on sports clubs and charities. A facility, put in place in finance legislation by the Chancellor, is already available, but clubs are not taking advantage of it at anything like the rate that we expected. It benefits a person's case if he can say why he is not doing that. In this case, I would encourage farmers to take maximum advantage of the available rules. Only in that way can a case be made for extending schemes if that is considered appropriate in due course.

Baroness Byford

My Lords, I am grateful to the Minister for his response. Indeed, I want to record my thanks to him from the time when I first took on this brief. He held a similar brief in another place and I have always been grateful to him for the help and assistance that he gave then. He will remember that days spent in opposition are not the easiest.

With regard to businesses which come together and form working co-operatives, since the Minister's time at the helm in another place things have moved on and we are grateful for that. I believe that noble Lords on all sides will welcome this move. I shall shortly be going to Kent to visit a group of people in the soft fruit industry. They are doing a very good job but they certainly would not qualify for this scheme because, together, they have become a large business. I am not talking about "big business", as the noble Lord might recognise. I would like to see those businesses take maximum advantage of the scheme. However, as I said, the difficulty is that in some cases it is down to the local authority to interpret whether a business qualifies.

Unfortunately, my papers which are relevant to this matter are upstairs, and tonight is not the moment to go into individual cases. However, it may be helpful to the noble Lord if I send him a copy of them. They may give him a slightly better understanding of why businesses are considered and helped in some cases but not in others. That is really down to local authorities. In putting forward these amendments, I was trying to instil a little uniformity without becoming too rigid. Perhaps I have not picked quite the right wording which would be suitable for tonight. I have looked at the rate relief Act 2001 and realise that it is time limited. I am grateful to hear that that might be extended. However, as the noble Lord said, that will depend on circumstances at the time.

I am grateful that the noble Lord realises that I am trying to prime new businesses to get them off the ground and not trying to pull favours for others who have got beyond that point and are well able to stand on their own feet. We all realise that things have been difficult out in the rural communities. However, in some ways it is an exciting time. Many of our new small businesses arc rural. The help that has been made available to them has been of great value and those businesses, in turn, employ others.

I thank the Minister for his response. I shall certainly let him have the relevant paperwork to try to highlight the difficulties that are seen, particularly by the National Farm Attractions Network because there is a real practical problem out there. However, at this stage I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 59F not moved.]

Clause 71 [Local retention of rates]:

Baroness Hanham moved Amendment No. 60: Page 35, line 24, after "fit" insert "after consultation with all interested parties

The noble Baroness said: My Lords, this is a small amendment which seeks to ensure that proper consultation takes place on the local retention of rates. It is a probing amendment to see what the Minister thinks would be carried out before any deductions are made with the purpose of the authorities retaining part or all of the local rates. It is a question of a response on the consultation and who that would be with. I beg to move.

Lord Bassam of Brighton

My Lords, I shall be brief but, I hope, helpful. As the noble Baroness said, this is a small amendment, but perfectly formed and identical to one proposed in Grand Committee. It is a helpful amendment because it enables us to say what we are up to.

On 4th July the Government published a substantial consultation document on the principles and concepts that will guide the design of the scheme to be made under the powers in this clause. That document was called Local Authority Business Growth Incentives—a Consultation Paper. Copies of that are being sent to the noble Baronesses who participated in this debate and to the noble Lord, Lord Hanningfield. That document specifically promises further consultation next year on the secondary legislation. So, there will he ample consultation.

We believe that the issue of the present consultation document and the commitment to further consultation match the concerns that the noble Baroness expressed quite properly here tonight and also in Grand Committee about the need to consult on this very important issue. It is there; there is a commitment to it for the next year and we do not believe that statutory consultation should be built into legislation to take account of every change, however minor. I hope that that satisfies the point raised by the noble Baroness.

Baroness Hanham

My Lords. I thank the Minister for that response. The problem about this, as always, is that legislation is taking place in advance of consultation and therefore one cannot possibly have access to people's views before the legislation is discussed by Parliament. But that may be helpful in my next amendment. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hanham moved Amendment No. 61: Page 35, line 34, at end insert— (4E) Notwithstanding the provision of section 143 of the 1988 Act (orders and regulations), no rules may be made under subparagraph (4A) unless a draft of the regulations containing them has been laid before Parliament and approved by resolution of each House."

The noble Baroness said: My Lords, this will be as helpful to the Minister as the last amendment, when we discussed consultation in relation to the local retention of rates, which I am bound to say is welcome. I do not dispute the clause; I am just trying to improve it. Also, because we have so far not had any detailed briefing on what people feel about this and how it should be carried out, it seems to us that after that has happened. further action should be taken under the auspices of the House and draft regulations which are approved by resolution of each House. I beg to move.

9.15 p.m.

Lord Bassam of Brighton

My Lords, again the amendment was proposed in Grand Committee. My response will be similar. I shall simply remind the noble Baroness that the Delegated Powers and Regulatory Reform Committee considered the delegated powers contained in the Bill. It did not recommend the change that the amendment requires.

As with Amendment No. 60—I appreciate they are both helpful amendments—the important point is that we have already published a substantial public consultation document, and we have specifically promised further consultation on the secondary legislation next year. So it is built in. There will be ample opportunity for interested parties, including I am sure the noble Baroness herself and her colleagues, to give us their views before regulations are made. We shall be very interested in those views. I am sure that the noble Lord, Lord Hanningfield, will want to ensure that the LGA and all others give us their views on these matters. I welcome the noble Baroness's support for the principle of the retention or part retention of business rates.

Baroness Hanham

My Lords, I thank the noble Lord. I have great regard for the Delegated Powers and Regulatory Reform Committee. It has not picked this issue up, but sometimes one feels that it might just have overlooked something, so we try to put it in. Anyway, I note what the Minister says. I do not intend to pursue the matter. I therefore beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hanham moved Amendment No. 62: Page 37, line 13, at end insert— (10) No rule made under this section shall increase the individual liability for non-domestic rates of any ratepayer.

The noble Baroness said: My Lords, I do not want to labour the point too much. However, because of the way in which the amendments are laid out, inevitably this consultation paper is causing me some concern. It arises on this amendment and indeed to some extent on the next one. As we are legislating at this stage without having dealt with that consultation, the amendment really seeks to find out whether the Government are considering any direct support to authorities which have a low business rate tax base. I understand that that is implied in the Government's written statement, which is presumably in the consultation paper. I beg to move.

Lord Bassam of Brighton

My Lords, I could tell the noble Baroness what the impact would be of her amendment, but I am not sure that that would be terribly helpful. That is not really the point she is on. My note does not really cover that point. She wants to find out whether there will be compensation to local authorities. I cannot answer the noble Baroness on that point. I have checked with my very wise and noble friend Lord Rooker. He is also unaware of the answer to it. So we are both a little in the dark. In those circumstances, we had better—

Baroness Wilcox

Give in!

Lord Bassam of Brighton

Certainly not. We had better go away and think about the matter. As a general rule, it would be unlikely. What I can say that is positive, is that—and it relates to individual businesses which is actually the issue—no business will pay more non-domestic rates through this scheme. In addition, there is no way under the scheme that it could be increased directly. That is the point so far as businesses are concerned. Whether there will be compensation through the local authority route, which I think was what the noble Baroness was seeking, I shall have to obtain some further responses and will probably have to write to the noble Baroness on the issue. So I am very grateful to her.

Baroness Hamwee

Keep going!

Lord Bassam of Brighton

My Lords, I shall attempt to extemporise some more. One point that needs to be made is that the amendment could have inadvertently prohibited the scheme encouraging business growth. Of course none of us would want to see that happen.

I can also advise the noble Baroness—I need to be clear on this—that all authorities with a diminishing rate base will benefit from this provision. I think that that was partly what the noble Baroness was after, so that saves a whole letter and the machinery of government will whirr that much more efficiently as a result. I hope that the noble Baroness will withdraw the amendment.

Baroness Hanham

My Lords, I am delighted that the Minister's advisers' brains whirr more quickly than do ours. That probably answers exactly what I was asking about, which concerned where the rateable base was decreasing, as opposed to rising—where the local retention of rates will be applicable.

I shall read what the Minister said in reply and ensure that it is entirely appropriate, but I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 73 [Provision of. Information]:

Baroness Hanham moved Amendment No. 63: Page 38, line 45. leave out "may" and insert "shall

The noble Baroness said: My Lords, I shall speak also to Amendments Nos. 64, 65 and 66. The amendments deal with the provision of information to the valuation officer regarding discretion on levying penalties. Each year, valuation officers request more than 250,000 rent return forms from ratepayers. In the five-yearly revaluation exercises, that quantity increases even further as valuation officers seek to assess the correct rateable value of the 1.7 million non-domestic ratepayers in England and Wales.

Until the Bill, a criminal penalty for non-provision of information required by the Valuation Office Agency has existed. That is now to be replaced by a civil penalty system, which is a welcome but slightly overdue move. The former system had not been revoked by the Valuation Office Agency, due to its draconian and entirely inappropriate criminal procedure. Welcome though the new civil system is, it introduces a large degree of discretion for valuation officers. That should be matched by appropriate guidance set by the Secretary of State, which would reassure ratepayers and professional advisers about the approach to be taken by valuation officers to levying penalties for non-return of requested information.

In Committee, the noble Lord, Lord Rooker, suggested that as there had been little problem with the old system of requesting information, there would be little difficulty with the new system. However, it will now be more tempting for valuation officers to use the easier system of civil penalties. That may occur where the ratepayer has missed deadlines or requests for information for plausible reasons. The amendments are therefore intended to prompt the Minister to provide ratepayers and professional advisers with the reassurance that they seek with respect to the new civil penalty path that will be open to valuation officers once the Bill is approved by Parliament and brought into force. I beg to move.

Lord Bassam of Brighton

My Lords, Clause 73 amends the 1988 Act by removing the criminal penalty for non-return of information requested by the Valuation Office Agency. The noble Baroness clearly understands that we have shifted to a civil penalty; I welcome her support for that. If a greater number of returns are received and are fully completed, the resultant rateable values on a revaluation are likely to be more accurate. We believe that that will benefit all.

Currently, occupiers are required to return information within 21 days or risk criminal prosecution. That is felt to be an inappropriate sanction and one that has been often ignored. Historically, few properly completed forms were returned. The clause changes the sanction from a criminal to a civil penalty and—helpfully, I think—extends the time allowed. We hope that that will ensure a better response rate and provide a more appropriate penalty.

The amendment would oblige the valuation tribunal to remit any penalty if the appellant is successful in an appeal explaining his reason for not supplying the information. That provision is contained in paragraph 5C(6). We must leave the discretion with the valuation tribunal. If the circumstances of a case are such that the tribunal feels that penalties ought to be waived or reduced, it can do so. It ought to have discretion as to how it acts. It should not be under a duty to waive or reduce penalties in all cases. For example, there may be circumstances in which a tribunal decides that, although there was a reasonable excuse, it did not cover the whole time before the information was provided to the Valuation Office and that the penalty should be charged.

Amendment No. 64 gives the valuation officer power to mitigate or appeal any penalty. That is already covered by paragraph 5B. There is nothing to stop a valuation officer waiving or remitting a penalty if a settlement has been reached, even if the person has started appeal proceedings already. The appeal can be withdrawn, and the matter would be completed. The amendment is not necessary, as the matter is already covered.

Amendment No. 65 would remove the power to increase or decrease the amount of the penalty. It is obvious that over time it might be necessary to review the penalty. We have already amended the Bill in line with the recommendation of the Delegated Powers and Regulatory Reform Committee, which the noble Baroness believes is a wonderful institution—we all believe that. It provides sufficient safeguards when introducing any changes to the penalty while enabling the penalty to be reviewed in the light of changing circumstances. We have covered that very much as the noble Baroness seeks.

Amendment No. 66 would introduce legislation to ensure that any notice must comply with guidance published after formal consultation. That would effectively make guidance statutory. We think that it is not necessary. The Valuation Office Agency will seek to apply a consistent approach to the implemenlation of the new provisions across all its offices. It is currently in discussion with interested parties on the guidance that it will use. It is hoped that those discussions will be concluded soon, once the legislation is in place. Then the agency will publish the guidance on its website, in accordance with normal practice. The guidance will be transparent, visible and accessible by anyone who wishes to find out how valuation officers implement the new provisions.

The points raised in the amendments are all covered. I hope that, as a result, the noble Baroness has greater confidence and reassurance.

Baroness Hanham

My Lords, I thank the Minister for that. It is helpful that the guidance will be published and that it will be accessible. The main purpose of the amendments was to ensure that there was guidance. I thank the Minister for his reassurance and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 64 to 66 not moved.]

Clause 76 [Second and empty homes: England]:

Baroness Hanham moved Amendment No. 67: Page 40, line 38, at end insert— ( ) No dwelling may be prescribed by the Secretary of State under subsection (1) above on the grounds that it is unoccupied if the owner or occupier is a sick or disabled person who is resident in a hospital, hospice, residential care home or nursing home. ( ) No discount may be removed from a mentally or physically disabled person under this section on the grounds that a dwelling is unoccupied if it is unoccupied by reason of long-term illness or infirmity.

The noble Baroness said: My Lords, the amendment returns to a matter that we discussed briefly in Committee. It is a matter of considerable importance, so we wish to raise it again. The amendment relates to the discounts that local authorities can implement. A local authority should not be able to make any determination under this provision where a property is unoccupied simply because its owner or occupier is sick or disabled and resident in a hospital, hospice, residential care home or nursing home. We can all think of examples where people have had to make serious determinations about relatives living away from home and need time to consider the matter. We propose that, while an owner or occupier is in an establishment or sick, they should not be subject to determination under these provisions.

Equally, in the second part of the amendment, we propose that, on grounds of long-term illness or infirmity, there should be no determination in the case where someone is living away from home or in a hospital because they are physically or mentally disabled. The aim of the amendment is to ensure that a decent amount of time is given to people who must make decisions on behalf of others about such matters, including, perhaps, whether a house should be sold. I beg to move.

Lord Rooker

My Lords, I hope that I can satisfy the points raised by the noble Baroness, Lady Hanham, which are legitimate but complicated points relating to local government finance.

Clause 76 inserts a new Section 1 IA into the Local Government Finance Act 1992 to allow a billing authority to reduce or end the 50 per cent council tax discount for classes of unoccupied dwellings prescribed in regulations. Amendment No. 67 appears to be an attempt to prevent the nationally set second homes and long-term empty homes discounts being charged in relation to property left unoccupied due to the long-term illness or infirmity of the owner or person who would otherwise have occupied it, or that person's residence in a hospital, hospice, residential care home or nursing home where he is sick or disabled.

The amendment is unnecessary and partly unhelpful. When a dwelling is left unoccupied because the owner or tenant who previously lived there now has his sole or main residence in a hospital, care home, independent hospital or hostel, or in another place for the purpose of receiving personal care required by him for a number of specified reasons, including disablement and illness, such a dwelling is exempt from council tax under either class E or class I of the Council Tax (Exempt Dwellings) Order 1992. There is no 50 per cent discount to remove in such cases because no council tax is actually payable.

The powers conferred by Clause 76 to allow authorities to reduce or remove the 50 per cent discount are irrelevant when the dwelling is exempt and not currently subject to the 50 per cent discount. However, a person may leave what was previously his sole main residence to live and receive care in a hospital, care home or similar establishment. If that person also owns a second home or another property which is a long-term empty home that was not previously their sole main residence, which is currently subject to a 50 per cent discount, we see no reason for special treatment of that second or long-term empty home.

As the law currently stands, no council tax discount is available on a person's property because the owner or occupier is in hospital for a short period. Our view is that if people are in hospital only for a short time, it is only fair that they continue to contribute to the cost of local services through the council tax on their home. As there is currently no 50 per cent discount in such cases, the powers in Clause 76 to reduce the 50 per cent discount are entirely irrelevant, as, with respect. is Amendment No. 67.

However, we are giving billing authorities the flexibility to introduce local discounts and exemptions in Clause 77. It would be open to individual billing authorities to choose to give a discount in individual cases of hardship. I do not think we should change the rules at a national level to automatically exclude from council tax liability people going into hospital for short periods regardless of their means.

It is good and bad, but we think that the amendment is unnecessary, even though it was put forward with the best of intentions. In the light of that explanation, I hope that the noble Baroness, Lady Hanham, will not press the amendment.

Baroness Hanham

My Lords. I thank the Minister for that reassuring response. The problem that we foresaw, without appreciating the other regulations, is that people sometimes go into residential care for quite a long time and never actually return to their homes. It would clearly be inappropriate if decisions were taken to stop or reduce a discount in those circumstances. However, as I understand it, the Minister has said that, under class E regulations. those people are automatically exempt from council tax, so I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hanham moved Amendment No. 67A: Page 41, line 4, at end insert— ( ) Any additional revenues received by a local authority as a result of a determination under this section shall be retained by that authority and must be reinvested in housing or related environmental policies.

The noble Baroness said: My Lords, the amendment relates to the discount money that is raised from second homes and empty homes, including the extra discount that will be raised. It would ensure that any extra revenue received by local authorities as a result of changes to the regime for second homes and empty homes is retained by the local authority concerned and then ring-fenced to be spent on housing, or related environmental issues.

It is an eminently sensible amendment. The local authority will have, and be able to keep—certainly in respect of second homes—the revenue raised as a result of the reduction in the discount. Perhaps, the money from empty homes could be added to that. As things stand, it is expected that the money will be given to the Exchequer.

There is too much in the Bill that gives the Government what the Minister beguilingly but not always convincingly calls "reserve powers". Among those reserve powers are a range of powers to interfere with the finances of local authorities. It would be right to say that there is still an air of suspicion among local authorities about the Government's intentions. The amendment would remove any scintilla of doubt about what local authorities can do with the revenue raised from the discounts.

As a quid pro quo, we suggest that the authority should spend an amount equivalent to the extra revenue on housing. After all, second homes are typically common in areas where there are difficulties in finding affordable housing. Often, they are in areas where there are local people who should receive housing and where the money could be used to tackle environmental issues. As well as environmental projects, there are infrastructure projects that may open the way to more housing—reclamation of roads, transport improvements or landscaping to allow limited development in an otherwise sensitive area.

I believe that that represents a sensible balance. I hope that the Government will agree to the amendment. I beg to move.

Baroness Hamwee

My Lords, the proposal that the authority should retain the revenues has our complete support. However, I hesitate over the second part of the noble Baroness's amendment. We would support reinvestment in housing and spending on environmental projects, but we would not support the ring-fencing of moneys to do so. The Government have made a good deal of the fact that they are trying to reduce ring-fencing. We should not encourage them to go the other way.

Lord Rooker

My Lords, as I said, the prime purpose of Clause 76 is to introduce new Section 11A into the Local Government Finance Act 1992 to allow a billing authority to reduce or end the 50 per cent council tax discount for classes of unoccupied dwellings prescribed in regulations. Amendment 67A would ensure that any extra revenue raised would have to be spent on housing or related environmental policies.

Our policy is clear. I know that it is a bit of a mantra, but I must say that the Bill is about freedoms and flexibilities, de-regulation for local authorities—a bonfire of regulations—and more freedom for local authorities than they ever thought they would get. I repeat that because it is not an unimportant point, bearing in mind what the noble Baroness said in moving her amendment.

Last November, the Minister for Local Government and the Regions, Nick Raynsford, said that local authorities should retain the additional revenue generated by the reduction in the current 50 per cent discount on second homes but not when they reduced or removed the 50 per cent discount on long-term empty property. We do not think that we should tell authorities what they should do with the extra revenue which is generated from reducing the second homes discount. Seventy-two per cent of the respondents to our November 2001 consultation exercise agreed that there should be local retention with freedom to spend on local priorities. That 72 per cent, I hate to say—well, I am pleased to say in a way—included the Local Government Association Conservative Group. Its response dated 31st January 2002 stated: Conservative attitudes towards local government must always presume 'freedoms' for local government—freedom from ring fenced funding and freedom to raise and spend income according to local needs". We believe that local authorities should he free to choose whether they wish to have a lower council tax than otherwise would be the case or invest in services. If it is the latter, it is for elected local government to determine priorities. That is a fair point to make. While affordable housing may be a priority in one area, it may not always be the case. There are not many areas of the country where the need for affordable housing is not a high priority. I accept that. We think that it is right for local authorities to have that freedom and flexibility.

The money from empty homes is kept by local government at national level and redistributed. It is not kept by the Government. I make that absolutely clear because otherwise it gives a false impression to assume that it just goes into the Treasury and gets lost; it is redistributed.

Baroness Hamwee

My Lords, when the Minister says "redistributed", does that mean the money forms part of the revenue support grant?

Lord Rooker

My Lords, yes. The money is redistributed from central government to local government. I suppose that it would get lost in terms of tracking where it actually is, but it does not get lost completely. It is redistributed back to local government. Let us face it, I do not know what the figure is but some 70 to 80 per cent of local government expenditure is financed from central government. That is what the revenue support grant is all about. It is worth something like £30 billion—or more than £30 billion. It is a huge sum of money. This money would be part of that.

Baroness Hamwee

My Lords, not exactly, because clearly it will not be an additional sum. It is going to be incorporated into the revenue support grant and used to dent the amount of money that the Government have to provide. So it is not truly coming back to local government, it is coming back as part of the revenue settlement. As that is not really what I raised, I am extremely grateful to the Minister for having answered that. I am also pleased to have given him the opportunity to place on record what the Local Government Association Conservative Group thought. It is always refreshing that he should know the details of what is put forward. The Minister's eyes are everywhere, and that is such a good thing.

The main burden is that the 50 per cent raised on second homes should be kept by the local authority. If it wants to spend it on housing or on related environmental issues it is entitled to do so. In that case, I shall leave it to the good sense of local government to decide what it wants to do. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Bassam of Brighton moved Amendment No. 68: Page 41, line 6, at end insert— (2) For section 12 of that Act (discounts: special provision for Wales) there is substituted—