Sitting of 14 February 1986

Preamble
The House met at half-past Nine o'clock
PRAYERS
[MR. SPEAKER in the Chair]
Orders of the Day

  Surcharge and Disqualification of Councillors (Abolition) Bill
  Order for Second Reading read.
  9.34 am
  Mr. Eddie Loyden: I beg to move, That the Bill be now read a Second time.
  The House will be aware that when an hon. Member is successful in the ballot for private Members' Bills he is inundated with letters from various organisations seeking his support for what they consider to be important issues. Hon. Members have to consider those approaches. Like any other hon. Member, I am grateful for the opportunity to present a Bill. The 35 or so organisations which wrote to me had commendable arguments and supportable ideas, but I had to reflect on whether it was possible in the present climate, and with the present Government, to introduce any progressive Bill that would stand a chance of gaining the support of Conservative Members.
  Since 1979 the Government have conducted a relentless campaign against the living standards of millions of working-class people and their rights and liberties which have been won in struggles over 200 years. We have experienced the highest levels of unemployment ever recorded, and attacks on trade union rights. There have also been attacks on local democracy, which is the reason for the Bill.
  The metropolitan county councils and the Greater London council are being abolished without the electorate being given a chance to decide. The National Health Service has been eroded, and social progress in many other areas has been halted. We have witnessed the greatest industrial unrest and the longest and bitterest strike since the war. We have had riots on the streets of our major cities for perhaps the first time this century. There has been a massive increase in drug abuse. Most recently, we have witnessed the erection of a "Berlin wall" in London at Wapping. The design of that wall, the barbed wire and the trenches, are no less of a barrier to freedom than the wall in Berlin. It is keeping the freedom of trade unionists out of the building, and that is the intention. That is the Britain which the present Government, especially the Prime Minister, have created.
  In those circumstances, what kind of Bill can an hon. Member present to resolve the problems that face the unemployed and local authorities? What can he do to help local authorities? High unemployment puts greater
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  demands on local authorities' resources, yet they are faced with further expenditure cuts and constraints on their activities. Today, two councils are before the courts for daring to attempt to meet the needs of the people whom they represent. That is a sad situation, and it is why I am introducing the Bill today.
  The Bill is an attempt to show the Conservative party that we in the Labour party will continue to use the time accorded to us in the House to raise questions about the liberty, freedom and rights of people which the Government are taking away. It seeks to remove the threat to local authorities of financial penalties and disqualification from office. The present system undoubtedly hinders policy making, encourages excessive recourse to legal opinion, and is a personal threat to members of local authorities. Evidence of that is seen by the fact that councillors are now before the courts in London. The system allows far too much power to be wielded arbitrarily by an unelected official, the district auditor, against elected councillors, who obviously have a far wider interest and remit than has the auditor.
  That anomaly is a hang-over from Victorian legislation. We know how the Prime Minister holds Victorian values in high esteem, but our working class experienced nothing but misery during the Victorian period. The best thing about it is that it has passed. However, the Prime Minister undoubtedly intends to rehearse those values which brought misery and deprivation to millions of working-class people, if the opportunity occurs.
  Surcharge and disqualification legislation goes back to 1834, when the Poor Law Amendment Act 1834 introduced the infamous new poor law. It introduced the right for Government auditors to disallow items of expenditure and to order the guardians to repay the amount. The law was extended during the 19th century and came to include elected councillors in the reformed local government councils. It has been the cause of some notorious court cases this century, of which the Poplar case in the 1920s is one of the most famous.
  When the Poplar council had the audacity to pay its labour force in excess of union rates in May 1923, the district auditor threatened to surcharge the councillors to the tune of £17,000 for the year ending March 1922. The case involved George Lansbury, and it has been dubbed the "councillors' revolt" by at least one historian. The Poplar councillors believed that they were acting within the law, which at the time was the Metropolis Management Act 1855. They argued that section 52 of that Act empowered the council to pay employees as it thought fit. The auditor disagreed, and, under pressure from the local business interests, decided to enforce a surcharge on councillors.
  The Poplar councillors' actions created a watershed in the history of the labour movement, of which many of us are proud. They acted in the best traditions of the labour movement. Despite their private anxieties, they were able and willing to risk their privileges and freedom to fight for working people. The two councils before the courts today are doing no less than the Poplar council did in the 1920s, and they should be gaining the support of our movement, just as the Poplar council did.
  The Poplar case has many parallels with more recent cases. It showed the power of the district auditor over elected councillors. At the time of the Poplar case Mr. Greenwood said:

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  "In the past we took no objection to the institution of the district auditor, but now the district auditor's powers appear to have grown far beyond what are considered to be reasonable. I do not need to trace the history of the growth of the area covered by the district auditors, but since they were established nearly a century ago … they have gradually extended their duties to cover the accounts of all local authorities except municipal boroughs and county boroughs outside London … As the powers now stand, the district auditor is not merely the guardian of the law; he is becoming, as a matter of fact, the arbiter of social policy. That puts him in an entirely different position, and I say that, whatever may be the qualifications of the district auditor to decide questions of legality, he is the very last person in the world to decide whether expenditure is reasonable or unreasonable. If he is a really good dyed-in-the-wool member of the Tory party, almost all forms of public expenditure would be regarded by him as unreasonable."—[Official Report, 15 June 1927; Vol. 207, c. 1037–38.]
  Today there is no difference in the role of the auditor, because he exists to act politically for the Government in the courts.
  Mr. William Cash: Will the hon. Gentleman give way?
  Mr. Loyden: I shall not give way.
  More recently we have seen the case of the 11 councillors from Clay Cross, and my hon. Friend, the Member for Bolsover (Mr. Skinner) will elaborate on it. They were surcharged in 1973 for refusing to implement the Housing Finance Act 1972, and we know the consequences of that for councillors in Bolsover.
  The principle of surcharge and disqualification has not been abandoned by the Government, although its demise is long overdue. Indeed, it has been built into the Local Government Finance Act 1982. The provisions for surcharge and disqualification are contained in sections 19 and 20. Section 19 deals with the powers of the auditor and the courts in relation to items of account which are contrary to law. Section 20 relates to the failure to bring sums to account and to losses due to wilful misconduct. It repeats, with minor changes, the provisions of section 161 of the Local Government Act 1972.
  A district auditor who considers an item to be contrary to law may apply to the courts for a declaration to that effect, unless the item is sanctioned by the Secretary of State. Where a court makes such a declaration, it may order repayment by those responsible, and disqualify members from office if the amount is more than £2,000. In addition, the auditor may certify that sums lost, due to wilful misconduct and failure to bring sums to account, must be repaid by the people responsible. A member from whom a sum of more than £2,000 is certified as being due is automatically disqualified from local authority membership for five years.
  Sections 19 and 20 empower an official to act against councillors where he, or she, considers that a council has acted outside the law or with wilful misconduct. The Act is so formed that, as in the Poplar case, councils are held to be guilty until they prove themselves innocent. We have always accepted that one of the tenets of British justice is that a person is innocent until proven guilty. The auditor's action assumes people to be guilty before they have appeared before a court. The responsibility rests upon them to prove their innocence. That is counter to natural justice, and it is something of which the House should be ashamed.
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  An official with no local accountability, appointed by central Government and acting behind a veil of secrecy, for which this Government are famous, has the right to throw a local authority into chaos, threaten councillors with personal financial disaster and spark off months of wasteful and expensive litigation, the outcome of which does not benefit a soul.
  Mr. Michael Forsyth (Sterling): Will the hon. Gentleman give way—
  Mr. Loyden: That is an absurdity and an irrelevance to the needs of local government in 1980.
  Mr. Forsyth rose—
  Mr. Loyden: I assure the hon. Gentleman that he will have plenty of time to speak if he catches your eye, Mr. Deputy Speaker.
  The Bill is not a publicity gimmick. It is an attempt to set local government on a more reasonable legal basis whereby policy making and its implementation can be carried out without a threat constantly hanging over local authorities.
  The Bill is limited to amending those parts of the Local Government Finance Act 1982 that deal with surcharging and disqualification. In addition, two sections of the Local Government Act 1985, which apply a similar system to members of the GLC and the metropolitan county councils, are amended by the Bill.
  Section 19 of the Local Government Finance Act 1982 is amended by the Bill. Under that Act the auditor may ask the court to declare an item of expenditure illegal, and the court may or may not refuse to make such a declaration. However, under the Act as amended the court would not be able to order repayment of the expenditure that had been declared unlawful. The court would be unable to order that the councillor be disqualified from being a member of a local authority for a specified period.
  At present, section 19 empowers the court to order payment by the council under audit of the auditor's expenses. That is ironic. A council found guilty by the auditor must meet its own expenses and defend itself in the courts, and at the same time pay the auditor's bill for legal representation.
  Section 19 is the most odious of all the sections. In line with the Victorian example that I gave earlier, it assumes that any person who is certified is guilty until proven innocent. Any person certified for a sum of more than £2,000 is automatically disqualified for five years. The consequences of section 19 for policy making and local government are devastating. At present, Lambeth and Liverpool councillors are under threat of surcharging and disqualification. Councillors in other authorities are also under threat, because they may be surcharged on a future date for decisions which they have taken in good faith.
  It is not an exaggeration to say that councils today are less inclined to carry out promises that they have given to the electorate, not because they are unwilling, but because they stand in fear of the actions of the auditor and the courts. The sword of Damocles hanging over the heads of elected representatives is a shame and a scandal. The Government should reconsider how they are treating decent men and women and decent trade unionists by making criminals of them.
  It is uncertain whether other members will be surcharged. That is also at the discretion of the auditor.

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  There have been examples of authorities, when dealing with minor matters such as school meals, having to consider carefully whether they can lower the cost of school meals to ease the pressure on families in areas of mass unemployment. Before they can do so they must seek legal advice, because they could be in breach of the law according to the auditor's interpretation of it.
  How can we expect local authorities to respond to the needs of the people they represent if they are in constant fear of being surcharged and disqualified, and when their lives and the lives of their families can be affected or even ruined for a decade to come? Under those circumstances, how can we expect local authority representatives to act properly in the interests of the people they represent? The Government have placed so many restraints on local authorities that they are incapable of carrying out their responsibilities.
  I became a member of Liverpool city council in 1960, so I know something about local government. During the 1960s and the 1970s enormous housing problems arose in Liverpool, not only with slum housing, but with housing built in the post-war period. That period created the concrete jungles. I do not necessarily blame the Conservative party for that, but local government was influenced to build in that way because the subsidies from central Government were higher. The policy was ill considered and ill conceived. We have a legacy of properties that are inadequate for habitation, especially for parents bringing up families.
  Those problems have been with us in Liverpool since the war. They were not tackled until the Labour council was elected in 1983. There is not a sign of a Liberal or an SDP Member in the Chamber today. During the Liberal administration, in cohorts with the Tories, in Liverpool, not one brick was laid for public sector housing for four years. The Liberals' budget strategy meant that when the Government introduced penalties, the budgets were pitched so low that it became a permanent problem for Liverpool to carry out enormous tasks in education and housing, and in improving the environment.
  The Labour council started building houses and creating employment for people in the building industry, and in this it had the full support of the building employers, who recognised the worthy cause behind the council's decision to build houses in the city. In the most impoverished, older areas of Liverpool, the council dared to build sports centres for the youngsters. Conservative Members constantly shed crocodile tears about young people, and we all recognise that youngsters need a place where they can go for recreation instead of being driven into the hands of the drug pushers, yet the fact that Liverpool city council decided to build sports centres in areas where they were needed was cited as one of the criminal offences committed by the councillors. The same was true of the council's housing programme, although it was simply trying to shorten the housing waiting list of between 12,000 and 16,000.
  The actions of the city councillors in responding honestly to the needs of the people who elected them have led them into the courts. The Government's intention was not to root out real criminals. There are plenty of opportunities to take action against councillors who are acting illegally, either through civil or criminal proceedings, so there is no need for the legislation that I am seeking to amend. It is there simply to act as a frightener to restrict councillors from doing what they
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  were elected to do. It is not only a scandal and a shame, but it tramples on local authority democracy. We should not tolerate it.
  I am glad to see my hon. Friend the shadow Secretary of State for the Environment on our Front Bench today, associating himself with the demands being made for a repeal of the legislation so that councillors can regain their right to operate in the way that we believe they should.
  My right hon. and hon. Friends will expand on the case during the morning. We have a responsibility to bring to the attention of the House, as I have tried to do, issues that will be relevant to the people outside. When they become more aware of the devastation that has been caused by the Government since 1979, of the way in which the wheels of progress have been turned back and of how democracy is being trampled on and destroyed, they will come to the conclusion that the only answer is to get rid of the Government. We must ensure that the Conservative party is relegated to the dustbin of history. We must also remove from the minds of the British people any doubts that a Labour Government will repair the damage that has been done by the Government and will reinstate the rights that have been removed from the British people. That will give us a Britain that is peaceful, prosperous and moving
  towards socialism.
  10.3 am
  Mr. Lewis Stevens: The hon. Member for Liverpool, Garston (Mr. Loyden) said that he was a member of Liverpool council during the 1960s and into the 1970s. I, too, was in local government in the 1960s and early 1970s, and it was a very different form of local government from the one that has grown up in some areas today. Although councils were divided into parties and we fought elections with some fervour, there was a tremendous amount of agreement in running the council. There was also a built-in acceptance of the responsibility of local councillors to act reasonably. The rates and the way in which they were set did not vary enormously—although some of the priorities varied — almost irrespective of party.
  Recently, some councils have spent money as they wished, irrespective of what the Government said. Therefore, measures had to be introduced to restrict that spending, which were accompanied by penalties to be used against people who abuse the law.
  Despite the hon. Gentleman's claims about the auditor and the alleged unfairness of the present legislation, section 19(3) of the Local Government Finance Act 1982 states:
  "The court shall not make an order under subsection (2)(a) … if the court is satisfied that the person responsible for incurring or authorising any such expenditure acted reasonably or in the belief that the expenditure was authorised by law, and in any other case shall have regard to all circumstances, including that person's means and ability to repay that expenditure or any part of it."
  Therefore, if the councillors believed their actions to be lawful, they could not be charged. We are being asked to remove sanctions against those who are prepared to flout the law.
  The laws of the land are made in this House, not in local government. Those who serve in local government may not like the law of the land, but they must obey it.
  Mr. Tony Benn: Has it occurred to the hon. Gentleman that if the Bill is passed, the law will be

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  changed? The purpose of the Bill is to change the law so that councillors acting responsibly will not be in breach of the law. Has it occurred to him that he is not in a council chamber, but in the Chamber of the House of Commons, where the law is made?
  Mr. Stevens: I accept the right hon. Gentleman's point. The Bill requires a change in the law. However, some councillors have ignored laws that have already been passed, for which there can be no excuse.
  Mr. John Watts: Does my hon. Friend agree that the Bill proposes the removal of penalties on those councillors who behave unlawfully? Therefore, the right hon. Gentleman's analogy is false.
  Mr. Stevens: My hon. Friend is right. The Bill wishes to remove penalties on those who try to take on the law. If people wish to take on the law and become martyrs, that is a matter for them.
  Mr. Don Dixon: Is it not true that the only person in the House who has broken the law recently is the Secretary of State for Transport, who has twice been found by a court to have acted unreasonably and unlawfully?
  Mr. Stevens: It is for the courts to make that decision. We also have penalties in law, which should be retained. People should not be allowed to take upon themselves decisions to spend money in ways which the law does not permit. Local councillors should not be allowed to take powers beyond those provided to them in law merely because they believe that they need to spend that money in their areas.
  Mr. Cash: Does my hon. Friend agree that one needs go back only a few years to see cases—Tameside, Congreve and Laker Airways are examples—in which a Labour Government committed a series of unlawful acts?
  Mr. Bill Walker: Does my hon. Friend agree that the difference between a councillor and a Secretary of State acting on behalf of the Government is that the latter believes that what he is doing is lawful? In this case, the councillors could not claim that they were acting within the law because they made a virtue of acting outwith the law.
  Mr. Stevens: My hon. Friend makes a valid point. Those who wish to act outside the law are penalised by the law. That is how it should stay.
  I have a great affection for Liverpool because I was a student there. I know that the city has problems. As the hon. Gentleman said, it had problems in the 1950s, 1960s and 1970s. But it is still necessary for those who run any city or town in Britain to act within the law, and that law should not be challenged.
  Mr. Allan Roberts: I shall do a deal with the hon. Gentleman. I shall have a word with my hon. Friend the Member for Liverpool, Garston (Mr. Loyden) and see whether he will alter the Bill removing the surcharge from councillors but impose that system which now applies to councillors on Members of Parliament and Ministers. If the hon. Gentleman thinks that the system of surcharges and checks on public expenditure for people in public places is good, will he introduce a private Member's Bill to impose the same system on Governments of any colour and Members of Parliament? Does the hon. Gentleman
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  accept that if Members of Parliament had their expenses scrutinised in the way that councillors do there would not be many left in the Chamber?
  Mr. Stevens: I hope that that is not a fair comment about hon. Members. My luck in private Members' ballots is such that I cannot accept the hon. Gentleman's offer.
  Mr. Bill Walker: On a point of order, Mr. Deputy Speaker. Is it in order to suggest that hon. Members are behaving in a manner that is dishonourable?
  Mr. Allan Roberts: Further to that point of order, Mr. Deputy Speaker.
  Mr. Deputy Speaker (Mr. Harold Walker): Order. Let me deal with the point of order first. I have heard nothing so far that is out of order.
  Mr. Allan Roberts: Further to that point of order, Mr. Deputy Speaker. I did not say that hon. Members act dishonourably. The system whereby—
  Mr. Deputy Speaker: Order. The House heard what the hon. Gentleman said, as I did, and I have said that I have heard nothing so far that is out of order.
  Mr. Stevens: Local government in Britain has a fair amount of discretion and money can be spent on a wide range of areas within the law. It is generally accepted in Britain by councillors of all political persuasions that they must act reasonably on behalf of their electorate within the law and not take on the Government of the day in pursuit of their own ideas. It makes no difference whether councillors act illegally once in power or whether they are elected as a result of promising to do something that is illegal; their actions will still be illegal.
  Mr. Tony Banks: The hon. Gentleman must know that in local government no decision can be taken unless there is some legal concurrent to a report that councillors are considering. However, on the GLC's "Fares fair" policy no one knew that that was unlawful under the Transport (London) Act 1969 until the court case. Not even the Minister who steered that Act through the House of Commons knew.
  Mr. Stevens: We are talking about surcharges and GLC councillors were not surcharged for that.
  Responsibility for making sensible use of money within the limits is one which hon. Members have tried to advocate over the years. It is only because that responsibility has been abused and because people have sought to go against Government policy and expenditure that the present position has arisen. It is almost an ill will that has been brought about that has demanded that councillors in that position must take note of what is demanded of them and act within the law.
  If the Bill were enacted, any group of councillors could go ahead irrespective of the Government, not only in the area of finance but in other areas as well. That surely is not what local government is all about.
  Mr. Robert N. Wareing: I am sorry to interrupt the hon. Gentleman who has been so good at giving way, but may I put it to him that even if the Bill becomes law, which I hope it will, the common law will still enable British citizens to take action against councillors. Is it not the case that the Tameside affair, which was mentioned by the hon. Member for Stafford (Mr. Cash), was countered by action in the courts? Were

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  not previous acts of local councillors, such as those at Enfield some time before, also countered by action in the High Court? Is not that course still open even if the Bill becomes law?
  Mr. Stevens: The law still has a part to play but the law should remain as it is to those who wish to go against local government expenditure right at the forefront. That is what this is all about. It is about local government spending as it wants to, not as the Government of the day say it can. That must be in the forefront. As my hon. Friend the Member for Slough (Mr. Watts) said, it is about the rule of law and financial aspects.
  It is too easy to take the course which in some cases has been taken. For example, some hon. Members did not like rate capping but nevertheless it became the law. If people go against such a law there must be suitable penalties.
  Some people in local government may find themselves constricted by their beliefs of what is good for their town. When I was in local government and there was a Labour Government, some of the laws that were passed caused us concern and difficulties with which we did not want to deal. We would have preferred to have acted in some other way. But there was no thought that we should go outside the law and that should not be changed. Most people in local government do not want confrontation. It is mainly politically instigated policies which force such a situation. [Interruption.] Politics are fine provided that one stays within the law. Choices exist but local councillors are not free to go through the roof on rates and expenditure.
  Mr. Loyden: How does the hon. Gentleman discriminate against a council that is faced with breaking the law by following the provisions of the Chronically Sick and Disabled Persons Act 1970 and that to which he is referring?
  Mr. Stevens: The job of local government is to adjust its finances to give the services that it can within the expenditure which it is allowed. That is a matter for it to sort out in the ways that it can and it has the opportunity to do that. An enormous amount of money is still going into local government from the Exchequer and the rates. It may be that expansion cannot take place at the speed that some people want, but services can be provided over a certain period and plans can be made for future expenditure. Restrictions are not such as to prevent local government giving a good service in many areas. That is sometimes blown out of all proportion. We know that over the years demands on local government—not just by statute but by the electorate—have become greater and greater. That has encouraged councillors to branch out with public expenditure on "glory palaces" which one councillor persuades his colleagues are necessary. Perhaps that expenditure is good for some areas, but that is not what local government is about. The basic function of local government must be to provide basic facilities on which the community can build. That does not demand tremendous expenditure or the wildly abused expenditure we have seen.
  These deliberate attempts to tackle and argue with central Government outside the courts set a deplorable example, especially to young people. These people who have been elected to responsible offices in local government are prepared to say, "We do not care about the law. We shall do what we want." That is what will happen under this legislation. It brings local government into
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  disrepute. Many people, whatever their political party, who serve in local government have a tremendous commitment to the job, yet those who are prepared to flout the law bring them into disrepute.
  People have grumbled about provisions imposing accountability on auditors. Surely the auditor is the man who can best pick out what is likely not to comply with the law in local government finances. I believe that the auditor should have the power to instigate an investigation and to bring the matter to the attention of the court. The court can then decide whether the council's actions are illegal. Without a provision to this effect, I fear that a considerable number of councillors will be tempted to go beyond what the law allows and therefore to jeopardise the council's general operations and schemes. We know of the effect of extortionate rates on business.
  In recent years, local government has instituted more and more subsidies wherever it wants. This must be brought under control. If subsidies are not controlled, we are faced with the problem of local councils going over the top in terms of rates and expenditure.
  So far, thank goodness, not many general offences have been committed. I believe that if we remove the controls that have existed for a number of years there will be a temptation to say, "There will be no surcharge. We are all right. We shall get clobbered. We shall be told off, but nothing will really happen." Councillors must be aware that they must act within the law and be responsible for their expenditure and that, if they operate outside the law, they must answer to the courts and perhaps suffer a financial penalty. We know what happens outside local government—if people do something wrong, they are penalised. If people abuse the system, why should they not be penalised financially?
  When Labour Members are in opposition they do not want real accountability of local government to central Government. That is not the case when Labour Members are in government. They then want more accountability to central Government and control of local government. This legislation gives us little control. I would not willingly give up control.
  I understand the depth of feeling on this issue especially of those hon. Members from Liverpool, where there are great difficulties. I believe that it is essential that we keep control within the law and that the people in control of spending know the full penalties that can be imposed under the law if they abuse the laws of the land. If they want to be martyrs, that is their choice. Responsible councillors are willing to act within the law. All councillors should do so.
  10.24 am
  Mr. Eris S. Heffer: The hon. Member for Nuneaton (Mr. Stevens) apparently did not understand what my right hon. Friend the Member for Chesterfield (Mr. Benn) was saying. We are debating a Bill to change a law which has been oppressive and has acted against ordinary people who have not wanted to break it.
  I congratulate my hon. Friend the Member for Liverpool, Garston (Mr. Loyden), first, on having the good sense and decency to introduce this legislation and, secondly, on the case he made. He made a first-class, well-documented speech. His case was well argued, and only bigots could possibly oppose it.

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  I have been disappointed over the years with my party's attitude to this issue. We should have abolished this oppressive legislation a long time ago. Even before Clay Cross, there was the St. Pancras case. A most distinguished Member of the other place became a Member when he had only just finished paying off money he owed because of the surcharges imposed on him in St. Pancras. He had been disqualified for many years from holding any public office. Why? Because he was a criminal? He was disqualified because his council had come up against the then Government's policy. The councillors had made a stand and found themselves in difficulty.
  The original idea was, rightly, to have safeguards against corruption. No one argues against that. Any councillor who is corrupt and takes back-handers for planning measures and so on must be dealt with. No one defends or supports them, whether they are Conservative, Liberal or Labour councillors. If after going through the due process of the law they are proved to be currupt they must be dealt with. We do not want corruption in local or in national politics. The Bill is not concerned with corruption, however. Surely no one suggests that because Liverpool and Lambeth councillors delayed setting a rate, they could be described as even mildly corrupt. Conservative Members have the right to argue that such action was politically wrong. Even some of my comrades have said that. However, no one can say that they are guilty of corruption and that they should be surcharged, disqualified and treated as criminals — certainly not because they have reacted politically to a political situation.
  The rate support grant for Liverpool has been reduced by £350 million since the Government came to power. That money has been filched from the city and the council has been faced with the problem of running the city with a considerably reduced budget. Where does it get the money from? What is it to do? It can either increase the rates or reduce services, and a reduction in services leads to redundancies.
  Liverpool councillors are faced with an unemployment level of 23 per cent., with all that that means to the ordinary people of the area. They have said, "We shall not be responsible for creating redundancies, cutting vital services and allowing housing conditions to worsen. We must deal with the drug problem and the other difficulties that face Liverpool." I say that they should be commended and supported, not be brought before the courts.
  Mr. Cash rose—
  Mr. Heffer: No, I shall not give way. The hon. Gentleman will have the opportunity to make his own speech.
  My hon. Friend the Member for Garston referred to Poplar. Incidentally, one of the Poplar councillors who went to prison during the 1920s was George Lansbury, and the House will be aware that he became the leader of the Labour party. He was not a criminal. There are bad laws and sometimes individuals are forced by the prevailing circumstances to come up against them, especially when they are class or political laws.
  Suffragettes did not secure the vote by being good, passive little girls. They had to put a few bricks through the windows of Cabinet Ministers' homes to bring
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  attention to their cause. Women have the vote now because a comparatively few women chose to fight and to break the law.
  Laws are changed in this Chamber, but often those outside this place have to take action and to make themselves martyrs before we respond. Action is taken outside to spotlight a bad class or political law and make us realise that we must change it.
  No one in Liverpool and Lambeth has broken the law—
  Mr. Tony Banks: Or any windows.
  Mr. Heffer: The councillors of Liverpool and Lambeth have merely deferred setting a rate. A rate has now been set in Liverpool, and there has been an increase of 9 per cent. As a Liverpool ratepayer, that has not made me particularly happy. Liverpool residents pay some of the highest rates in Britain. When the Liberals had supposed power and control of the city, they deliberately kept the rates at a low level. When the Labour party regained control, it was faced with the present Government's attitude towards local government. The Labour-controlled Liverpool council found itself in difficulties immediately because of the rate that it had inherited from the Liberals.
  I accept that the Labour-controlled Liverpool council can be criticised on a number of grounds. I have frequently heard Conservative Members criticise the GLC, for example, for setting up a woman's committee and spending money on projects with which they do not agree. Nothing like that has been done in Liverpool. Rightly or wrongly, the Labour-controlled council has not set up a women's committee. It has not done many of the things that other Labour councils have done. Instead, it has done simple things like building houses. It has built more houses than any other council, and they have been built for working people.
  Mr. Terry Fields: Will my hon. Friend lay to rest the rumour or the lie that the Government have put out that the Labour-controlled Liverpool city council is responsible for big-business interests withdrawing from the city? The reverse is true. Builders are coming into the city and there is a boom in the byproducts of the building industry. That is true of the glass, steel and timber industries, and workers in those industries are getting jobs.
  Mr. Heffer: I am glad that my hon. Friend has made that point. The Government have introduced legislation to prevent local councils issuing political propaganda. Liverpool, like other councils, issues a printed sheet which explains what is happening in the city and all the major advertisements that appear in it are from the building companies. They advertised to such an extent that it cost the city council nothing to circulate the sheet.
  Mr. Fields: Instead, it made a profit.
  Mr. Heffer: That is right. That happened because business interests, especially in the construction industry, were delighted by the council's actions and felt that they should advertise.
  The Parliamentary Under-Secretary of State for the Environment (Mrs. Angela Rumbold): Does the hon. Gentleman accept that there is nothing in the Local Government Bill or in the code of practice that will prevent right and proper advertising by building companies in Liverpool?
  Mr. Heffer: I have said nothing about advertising by employers' organisations. Of course there is nothing to stop them advertising. However, if there were the suggestion of the slightest political statement, it would be stopped. I was making the point that business interests, especially in the construction industry, are more than happy with what the Labour-controlled city council has done. The same goes for other industries.
  The council has built sports centres. There is massive unemployment in Liverpool, and many of the unemployed are young. The development of drug abuse is horrifying. Liverpool must be one of the worst areas for it. This is because there are so many in the area who have nothing to do. They have no work and some of them are becoming demoralised. The council has built sports centres to try to get people off the streets. They are wonderful sports centres. I have been to see them, especially those in my constituency. My hon. Friend the Member for Garston opened a sports centre in my constituency, and I was only too happy for him to do so. Nursery schools are being provided, which helps young women who desperately need it to take employment. The council is also providing many other services.
  We are not ashamed of what our people have done. We are ashamed of and opposed to the system that brings our people before the courts. There is no justification for that, as there was no justification for the action taken against the Clay Cross and St. Pancras councillors and other councillors way back to Poplar. The law must be abolished.
  If we took up the suggestion of my hon. Friend the Member for Bottle (Mr. Roberts) and amended the law to apply to Government Ministers, many of them would soon be disqualified from holding office. I appeal to hon. Members not to be blinded by sheer political prejudice. If political prejudice is not part of this law, the Government should follow my hon. Friend's suggestion and introduce a Bill to deal with Members of Parliament in exactly the same way as the Act deals with councillors. The country would benefit from that because so many Ministers would be disqualified for wasting money.
  I appeal to the House to give this important Bill a Second Reading. My hon. Friend the Member for Garston has done a great service to the people by introducing it.
  10.42 am
  Mr. William Shelton: I followed the speech of the hon. Member for Liverpool, Walton (Mr. Heffer) with great interest. Lambeth councillors are in this predicament, not because they did not set a rate, but because by not doing so they have cost the community and the ratepayer money. I do not know when we will have the result of the case. I have sympathy for them, but they were warned of the consequences of their actions.
  I very much agreed with the speech of my hon. Friend the Member for Nuneaton (Mr. Stevens). We must consider the root causes of the decision to introduce the rate-capping legislation and the legislation which this Bill, introduced by the hon. Member for Liverpool, Garston (Mr. Loyden), seeks to abolish. I suppose that both pieces of legislation are designed to control the behaviour of certain councillors. The right hon. Member for Chesterfield (Mr. Benn), perhaps inadvertently, put his finger on the matter when he spoke of councillors acting responsibly.
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  In general, councillors have acted responsibly in past years. Why has there been a change in more recent years? I do not think that Opposition Members would disagree with my belief that during the past five or 10 years there has been a form of confrontation politics quite new to local government. That has reached a fine flower in the borough of Lambeth, where I have my constituency, and has cost the community dear. The councillors have acted irresponsibly. I shall not detail the catalogue of waste and inefficiency in their administration. We need only compare the boroughs of Lambeth and Wandsworth, which are side by side and which have similar populations of about 245,000 to 250,000. The number of council staff in Lambeth is more than 10,000, while in Wandsworth there are fewer than 6,000—
  Mr. Allan Roberts: What about the services?
  Mr. Shelton: I refer the hon. Gentleman to a speech that I made some time ago, which I should be happy to send him, when I compared the services of Wandsworth and Lambeth.
  The rates in Lambeth average £11 a week, while in Wandsworth they average £6 a week—
  Mr. Allan Roberts: Does the hon. Gentleman approve of the practice of the private refuse collection service in Wandsworth, which is breaking the law by having only two people with each wagon? Does that not mean that the engine of the wagon is left running because the driver has to empty the bins? Is that not illegal? The private firm is doing that to keep within its tender.
  Mr. Shelton: Like the hon. Gentleman, I would never approve of anyone breaking the law. After all, that is what we are discussing today.
  The confrontation politics that have led the Lambeth councillors into this predicament have other manifestations that are damaging to my constituents and the borough of Lambeth. They range from the dangerous—even the sinister—to the absurd. An example of the dangerous is the hostility of Lambeth council to the police, which manifests itself in a number of different ways. For example, the community police liaison committee, set up as a direct result of Lord Scarman's report, has been denied the use of Lambeth town hall for its meetings and is having to find alternative premises. Meanwhile, the council has set up its own police committee in competition with the Lord Scarman-based consultative group. Not only is that very damaging to the borough, but it is a pity that such a thing should happen. The council, in certain areas, has even refused consultation between the police and social services.
  The council has attempted to exclude opposition members from its committees. It issued a questionnaire requesting various details about the private incomes of councillors — to which we have been delighted to respond — and about personal affiliations, such as whether we belong to certain clubs, to which we have refused to respond. The Conservative group had to apply for an injunction so that it could attend committees. That is confrontation politics.
  At the other extreme—the absurd—the council has made an extraordinary proposal to rename 28 landmarks at a cost of £5,000. It is intended to rename Streatham Pool "Mangaliso Sobukwe Pool" — where we and other political parties hold meetings — and Brockwell Park

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  "Zephania Mothopeng Park". That is what happens with confrontation politics. I find that so absurd that I have contacted the local newspaper and offered a prize of £50 for the renaming of another landmark, Councillor Knight.
  Mr. John Fraser: I wish to make it clear that that proposal—which was not from the council, but from a committee chairman—would probably be illegal after 1 April, so it is extremely unlikely that it will ever see the light of day.
  Mr. Deputy Speaker: Order. This is very interesting, but I find it difficult to relate it to the Bill before the House.
  Mr. Shelton: The rate-capping legislation and the legislation which the Bill seeks to abolish were the results of confrontation politics—
  Mr. Stan Crowther: On a point of order, Mr. Deputy Speaker. Is the hon. Member for Streatham (Mr. Shelton) really under the impression that the Bill has something to do with rate capping?
  Mr. Shelton: The purpose of the Bill is to abolish the legislation that allows the disqualification and surcharging of councillors. That control was placed on councillors because of confrontation politics. Equally, rate capping is a control on councils because of confrontation politics. The situation has become a great deal worse during the past five or 10 years, as the hon. Gentleman well knows. The reason for that and similar legislation that controls the behaviour of certain local councillors is that they have been acting irresponsibly. Their irresponsibility is part and parcel of a whole, which has been damaging to Lambeth.
  The burden of my argument is that, because of the damage that has been caused to my constituency, I shall not support the Second reading of the Bill. I support the continuation of the present legislation because of the difficulty of controlling irresponsible politicians.
  Why has that happened?
  Mr. Tony Banks rose—
  Mr. Shelton: I shall give way in a moment.
  It has happened because of the new breed of Left-wing politicians. I have already mentioned Councillor Knight. He is the leader of the Labour party of Lambeth and he is, I am told, a member of the Workers Revolutionary party. Labour hon. Members and my hon. Friends will know what the Workers Revolutionary party stands for—antidemocracy, confrontation, and so on. That is why, when one has a leader of a council who has those inclinations, one must have the kind of legislation which the hon. Member for Garston wishes to repeal. That is what I am saying. Thank heavens we do have such legislation.
  Mr. Tony Banks: The hon. Gentleman would be most unwise to repeat outside this House what he has just said about Councillor Ted Knight. The hon. Gentleman might be a wealthy man, but he would have little money left after he had been taken through the courts, because he has just slurred the reputation of the leader of Lambeth council.
  Secondly, the hon. Gentleman clearly misunderstands the Bill and the whole question of surcharging councillors. It can be traced back to 1834. I do not know about confrontational politics, but at that time the intention was to stop local councillors from dipping their fingers into the till, and that law should be introduced to stop Members of Parliament from doing that as well.
  Mr. Shelton: I do not think that the House would accept the suggestion that hon. Members are dipping their fingers into the till. I do not believe that councillors dip their fingers into the till either. The law has been in force for a number of years. My hon. Friend the Member for Stafford (Mr. Cash) tells me that it was in force before 1834.
  What has happened in Lambeth and Liverpool is, to the best of my knowledge, unique. As far as I am aware, that number of councillors has not previously been surcharged by the auditor.
  Mr. John Fraser: What the hon. Gentleman said about Councillor Knight would be libellous if repeated outside the House, and I think that he would be right to withdraw the allegation.
  Mr. Shelton: If the hon. Gentleman had listened, he would have heard that I said I had been told, by a number of different sources, that he is a member of that party. If Councillor Knight wishes to deny that, I shall look forward with interest to reading his remarks.
  It is a lack of political control—extremism—among local councillors which has brought about the legislation which the hon. Member for Garston is trying to repeal. In my view, it is right and proper that such legislation should remain in existence, to protect the members of the public who are in boroughs controlled by those Left-wing politicians.
  10.54 am
  Mr. Tony Benn: The speech of the Member for Streatham (Mr. Shelton)—I shall not call him the hon. Member — and the speech of the hon. Member for Nuneaton (Mr. Stevens) together represent two of the clearest statements that I have heard of the Conservatives' attitude towards democracy. Their view of society is that if the Tories are in power, by definition they are behaving responsibly, even if they sell off our most priceless assets, run down the welfare state and destroy the prospects of employment. That is responsible and nonpolitical. If, however, a group of people win the support of the electorate for a contrary policy and the Conservative party finds itself not in a majority, it no longer believes in the democratic principle. The district auditor is called in to decide what action is to be taken in a local authority.
  The question of acting responsibly is a central question, but responsible to whom? The district auditor is responsible to nobody. He is not responsible to the House, he cannot be defeated in the House and he cannot be dealt with by the electorate. The core of the argument is that the Conservative party says that if one is anything other than a Conservative, one is, by definition, political and irresponsible. Therefore, if by chance such a person wins, the Conservative party says that it will have other ways of dealing with him.
  To cover that up, the Member for Streatham comes out with a direct smear about a distinguished local government leader, Ted Knight, knowing quite well that the newspapers will print that tomorrow and that the lie will be used to damage the leader of an elected council. One cannot do more than remind the House that the purpose of privilege is to protect people, not to use the protection of Parliament to destroy public reputations. The speech of the Member for Streatham is one of the most disreputable speeches that I have heard in nearly 36 years in the Chamber of the House of Commons.

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  I am proud to be a supporter of the Bill. I think that my hon. Friend the Member for Liverpool, Garston (Mr. Loyden) has done a great service. He has brought into focus the real issue, which is that in Britain we have an unjust law, and the prime victims of that unjust law are not the councillors but the people they represent. It is their interests which are adversely affected.
  As this is a Friday morning, we can perhaps be more clinical. I shall draw a contrast between the conduct of private capital and local democracy. If any two Conservative Members set up a company, make some money and the company goes bankrupt, they are not bankrupted or surcharged. They are protected by the Companies Act 1980 and could set up another business the following day. In some cases, I have heard it said that companies go bankrupt and the old owners then buy the assets of that company from the receiver at a knockdown price.
  Mr. Cash rose—
  Mr. Benn: I am not giving way, because I want to get my point across with absolute clarity.
  If one is a private business person, one can leave a trail of bankruptcies among sub-contractors, buy the company back, sack the people employed and still be free the following day. However, if one is a locally elected councillor, there is no such protection.
  I shall take a classic case of two famous men who reduced fares — Freddie Laker and Ken Livingstone. Freddie Laker reduced fares and went bankrupt. He left many people out of work and others could not manage to pay their bills because they had been sub-contractors. Freddie Laker is a hero of the Government and has been knighted for his pains. Ken Livingstone, only a symbol of the local authority, introduced cheap fares and was taken to court before Lord Denning. Somebody later explained to judges what a bus was, and in the end they reached a compromise. The reality is that if local government tries to meet transport needs by lowering fares, councillors, if they do not pay their fines, are at risk of imprisonment, bankruptcy and surcharge, but private business men can make profits by leaving a trail behind them. That is what the Bill is about.
  In a clinical sense, we are seeking to change class legislation. Since Victorian times class has not been allowed to be mentioned. In Victorian times the upper classes looked down on the lower classes. When Karl Marx told the lower classes there were more of them and that if they banded together they could change society, class ceased to be a respectable word to use. If we are returning to Victorian times, let us resuscitate Victorian language and discuss the fact that there are more poor people than rich ones. Democracy in local government allows poorer people to buy collectively, by the ballot box, what they cannot afford individually.
  That is what democracy is about. I do not know how many hon. Members are dependent upon public provision or require council accommodation in which to live, but if one cannot afford the services that one needs—home, nursery school, education or pension — democracy is about buying it collectively by using the ballot box.
  That is what the Chartists and the suffragettes were about. They were not interested in obtaining seats in this place. They saw democracy as a route to social justice. The same is true of trade unions. We are not discussing
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  them, but if people band together they can get back in wages from their employer a share of the profit that they make. If not—that is why Murdoch has stopped trade unionism—one has to put up barbed wire and publish the Wapping lies which come out in The Sun, The Times and The Sunday Times.
  This Bill brings out the point that the Tory party hates democracy because it gives the people the power to get a fair share of the wealth that they create. Democracy limits market forces and it must be hammered on the head wherever it appears. That is why the GLC has been abolished. That is why rate capping has been introduced. That is why the latest Local Government Bill has been introduced. It prevents people from even speaking to one another if they have elected their local authority. That is why the Government use the courts against councillors, to make them seem to be criminals. That is why the Government are now talking about development corporations. If there is a local authority which they do not like, the Government set up a corporation. It is not democratic. It is put in the heart of the inner city. The Government then give money to their business friends to make a profit out of the poverty of the inner city without that corporation being responsible to the electors in the towns.
  The Tory party is the enemy of democracy. That point comes out through all the legislation. I heard the speech by the hon. Member for Nuneaton. He talked about how marvellous it was in the old days when councillors behaved responsibly. I acquainted myself with 100 years of Birmingham government from 1838 to 1939—long before all the dangerous extremists appeared. In 1838, the municipal charter instituted elected councillors in Birmingham; 1842, the establishment of the police force; 1850, the first city asylum; 1861, public library; 1867, art gallery; 1870, school board; 1872, first medical officer; 1874, first municipal hospital; 1875, city takes over the supply of gas—that was not the hard Left in 1875—corporation begins clearance, city fire brigade; 1876, city takes over water supply. That was 110 years ago. We are not returning to Victorian England if we return to that. In 1890, Birmingham has the first municipal houses; 1898, city takes over the supply of electricity; 1904, city commences operating tramways, Welsh water supply commences; 1908, city takes over care of maternity and child welfare; 1916, municipal savings bank: 1919, municipal orchestra, beginning of big municipal housing; 1930, city takes over public assistance, and in 1939 municipal airport opens.
  That was Victorian municipal enterprise. It took place largely under a man who later became famous —Joe Chamberlain—the great Liberal leader who realigned himself and later became the great Liberal imperialist. The House should not be told that we are going back to Victorian England. The roots of municipal Socialism began in Victorian England. If the Conservative party tries to take us back to that period, it will find that it is not just attacking Socialism; it is attacking the tradition of public responsibility in government.
  The Bill removes disqualification. By removing it, the Bill would restore two controls on local councillors. If a councillor is corrupt, he or she should be prosecuted by the police. If he or she behaves in a way that the electorate does not like, he or she should be defeated at the polls.

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  There should be nothing between the police court and the polling station to prevent councillors from serving the interests of their people.
  Mrs. Rumbold: I wonder whether the right hon. Gentleman could clarify something. Is the support that he gives to the Bill shared by his Front Bench?
  Mr. Benn: The hon. Lady has asked a silly question because she knows that the Front Bench is about to speak. She intervened to create a diversion from what I am saying, which must be painful to her.
  When those councillors appear before the judges, the press will regard it as "Red" Ted or Derek Hatton being hauled before the judges on some criminal offence. If the judges decide to punish them, the court's punishment will be vested in the people waiting for housing or public services and in those whose names are never mentioned in the newspapers, because the newspapers do not want the public to know that those councillors stand between them and poverty and despair. It is an attack upon people in the inner cities, but whose councillors are up for prosecution.
  The Bill merely restores the position to what it should be. The police court or the polling station are the only hazards that councillors should face. Councillors should be free to provide any services which are in the interests of the people—to acquire by purchase or to hold any land or buildings; to establish any company, as any Government can; to assist by way of grant, loan or subsidy; to make grants to voluntary bodies; to provide services of news and information; and to undertake any activity not explicitly prohibited by Act of Parliament.
  This is not a constitutional discussion. We are not spending Friday morning doing an A-level course in local government. We are talking about how we shall get back to full employment. The police yesterday advertised on television their new high technology warfare, because the Government have failed to solve the nation's problems. The police are now the ultimate weapon of local government. The police are the ultimate weapon of industrial policy, because when people are left to rot on the dole the answer is not a vigorous, vital local authority; it is men in flame-proofed jackets with shields against petrol bombs, because the Government know in their heart —that is why they are looking for a new leader—that they cannot ignore social justice and expect public support. Our history proves that. We should develop local government to meet that need.
  Looking back to the 1930s, what ended unemployment was public expenditure. It was all on weapons of war, and I do not recommend that. It was public expenditure to build ships, guns and aircraft. That took people off the dole. When they were in work, like the building workers in Liverpool, they paid taxation, and we returned to full employment. Public expenditure ended the slump. Granny did not buy a tank and dad did not have an A registration Spitfire in the garage. It is by the agency of public expenditure, nationally and locally, that we shall end unemployment.
  The greatest and most sensitive agent of public expenditure is local government, because councillors know what needs to be done. They can meet the needs of people for 24-hour-a-day care for old people, day-care provision for mothers with children, proper libraries and sports facilities, about which my hon. Friend the Member
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  for Garston spoke. In that way we can restore full employment and demobilise the riot police, because there will be no need for them.
  That is the issue that we are discussing. By introducing the Bill, my hon. Friend has performed a great service, because without the normal hype of a debate about controversial Government legislation, the House has an opportunity, through his wisdom, to focus its attention on the real question—whether profit is to take precedence over need, and whether we are to have democracy or market forces running the country. Those questions will determine the outcome of the next general election.
  11.10 am
  Mr. Bill Walker: First, I must declare an interest. I am a ratepayer in London. That is one of the reasons why I wish to speak in this debate. However, there is something much more important behind my wish to take part in this debate. I was elected as a Conservative and Unionist Member of Parliament. I support our unitary Parliament. I support the occasions when English Members of Parliament intervene in Scottish business, as they regularly do. The Bill does not apply to Scotland but that does not mean that I, as a member of this unitary Parliament, have no interest in it. That is why I thought it wise to declare my interest at the beginning of my speech. I care fundamentally about this unitary Parliament. A matter of constant discussion in Scotland is whether or not there should be a unitary Parliament.
  Mr. Dixon: The hon. Gentleman says that he is a London ratepayer. Will he also point out that his rates are reimbursed from the public purse in the form of expenses?
  Mr. Walker: I do not deny that that is so. I should not be a London ratepayer if I were not a Member of this House. I do not claim any special privileges or rights, but that does not change the fact that I have an interest in seeing that the public purse gets good value for its money, either through me or in any other way. The hon. Gentleman does the House a disfavour if he thinks that simply because hon. Members draw expenses for staying in London we lose interest in getting value for taxpayers' money.
  The right hon. Member for Chesterfield (Mr. Benn) has a marvellous facility for forgetting facts. He referred to what happened in the 19th century but he failed to refer to the last Labour Government of which he was a member. Does he remember the capital programmes that were slashed by the Government of which he was a member and the massive cuts in public expenditure that had to be made during the period when he was in office? Of course not. He has a selective memory, as have so many other Opposition Members. But this does not surprise me. It is distasteful for the right hon. Gentleman to lecture us about privilege, upbringing and the class war. I do not know where he went to school, but I know where I went to school. I know what my father worked at; I am fairly sure that he knows what his father worked at.
  Mr. Benn: Do not be insulting.
  Mr. Walker: To suggest that if somebody holds a different political view from the right hon. Gentleman he is less than a democrat does a great disservice to democracy. In a democracy we have differences of opinion. We are attempting today to change the law through the democratic process. I commend the hon.

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  Member for Liverpool, Garston (Mr. Loyden) for going about that process in the proper legal manner. However, it is wrong to suggest that, because we obey the law, those who deliberately break and flout it must also be commended. It is not true that change has been brought about because people have deliberately flouted the law. That is a very selective way of looking at history. Many of the great changes have been brought about because of the mood and the will of the country. That is the way in which democracy functions. It is a fragile creature. It cannot be sustained when it is flouted by a large number of people. That is the death knell of democracy.
  Democracy functions correctly when we consider a Bill such as this. That is why I, a Scottish Member of Parliament, am in London on a Friday morning. I care deeply about the proper democratic function. I want to go back to my Scottish constituency and say that I was in the Chamber today because a Bill was being discussed which affects what I believe to he the fundamental roots of our democratic system, particularly at local government level.
  Mr. Martin Flannery: The hon. Gentleman said that democracy is created according to the mood of the people. What does he believe is the mood of the people now? A mass of legislation has been pushed through Parliament very quickly. If a trade union does what it has been set up to do, it is not fined for having broken the law; its funds are sequestrated and its functions are caught well into the future—
  Mr. Deputy Speaker: Order. Those matters do not arise under the Bill.
  Mr. Walker: Thank, you, Mr. Deputy Speaker. I shall not reply to that intervention. I could do so, as you know, because you and I have served in Committees on trade union Bills. You are well aware of my credentials in the trade union movement. Therefore, I thank you for your protection when the hon. Gentleman intervened, but I am sure that you realise—
  Mr. Deputy Speaker: Order. I am not protecting the hon. Gentleman. I am protecting the House and its procedures.
  Mr. Walker: If the procedures protect me, I am thankful for them.
  The right hon. Member for Chesterfield is very selective in his criticisms. Is he telling the House that he expects Government Ministers to be surcharged when things go wrong? I hope he is not. It is a horrendous suggestion, if one remembers the enterprises that the right hon. Gentleman brought into being that later found themselves in dreadful financial trouble. I draw attention to that point merely to show how selective is the right hon. Gentleman's presentation of facts.
  The Bill provides for the abolition of
  "The system of surcharge and disqualification as it applies to members of local authorities, and for connected purposes."
  I listened carefully to the speech of the hon. Member for Garston. He believes that the district auditor is not being fair and reasonable. But the district auditor has to operate within the law. All forms of public expenditure that he examines have to be judged to be reasonable. There are many forms of public expenditure that some members of the public judge to be unreasonable, but if it is lawful it is right for councillors to continue to spend money in that way.
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  If Parliament and the Government judge that the law needs to be changed because it is not protecting the taxpayer, so be it. This made the Labour Government of which the right hon. Member for Chesterfield was a member act as they did. I do not argue about that. They acted in the best interests of the country at the time. Sometimes difficult decisions have to be taken. I am sure that it was a difficult decision and that they did not enjoy taking it. If it was acceptable to the Labour Government to do what they did in the interests of the country, why is it wrong for another Government to do exactly the same? Councillors know and understand what they are entitled to do. As the law stands, their scope for spending money is considerable.
  Mr. Wareing: Will the hon. Gentleman give just one instance during the lifetime of a Labour Government when any councillors were surcharged and disqualified?
  Mr. Walker: When a Labour Government are in office, Tory councillors and Tory Members of Parliament support that Labour Government in their efforts to do what is in the best interests of the country. Tory councillors have never indulged in public expenditure that is contrary to the wishes of central Government. My hon. Friend the Member for Streatham (Mr. Shelton) referred earlier to confrontation politics. Confrontation began in its worst form under the last Labour Government. It was a sad day for the Labour party when that happened. It has destroyed a great deal of its credibility in terms of its wish to form a Labour Government.
  Whether the right hon. Member for Chesterfield and the hon. Member for Sheffield, Hillsborough (Mr. Flannery) are right in suggesting that my Government are unpopular will be judged when we go to the polls. That is how Parliament works. I am happy and prepared to face my electorate with the record of my Government, and my record. In case the right hon. Member for Chesterfield should think that I am concerned about the Labour party, I point out that it picked up 2,100 votes in my constituency, so the Labour party is not a threat to me, although other parties may be.
  The Labour party talks about the rights of working people. To suggest that somehow the district auditor and the Government are against the working people is to distort the truth and stand it on its head. Working people are best represented and looked after when both central and local Government are working in harmony. Where, for whatever reason, they are working in disharmony, that cannot be to the advantage of the people. Sadly. that is what we have seen.
  Anyone who suggests that Members of Parliament and Ministers should operate in the way that councillors operate is failing to read carefully the laws as they apply to councillors. I suggest that they should also look carefully at the situation in which some of their colleagues would have found themselves, such as the right hon. Member for Chesterfield, if they had been so accountable when he was a Minister. Both he and I know that that would be nonsense. It is only when one is out of office that one makes nonsensical proposals. When in office the Labour party has never attempted to carry out such policies.
  It has been said that the Labour Government should have done something about this situation when they were in power. However, they did not do anything about it

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  because when in office they were restricted by the obligations that office places upon them, and that means running the economy effectively and efficiently. It is very easy, when one is out of office, to take a different view of financial disciplines.
  There was talk about attacks on trade union rights, the erosion of the NHS, industrial unrest and the Berlin wall. All that is nonsense and has nothing to do with the Bill. None of the examples is relevant or directly related to it. The hon. Member for Garston made an interesting speech, which meandered through these points. He suggested that the Berlin wall, which was built to keep people in, is similar to the fences put up in the United Kingdom to keep people out, which is nonsense. Everybody has a right to protect their properties.
  If, in future, we are to have sensible local authority expenditure, we must not continue with the nuclear-free zone policy. For example, anybody who knows anything about Derby knows that Rolls-Royce has had a nuclear reactor in that town for years. To suggest that the local authority is acting in a reasonable manner by then making Derby a nuclear-free zone is not logical. The district auditor can say that any expenditure on declaring Derby a nuclear-free zone, and allowing the councillors to indulge in all the activities such as attending conferences and spending on publicity, is hardly reasonable expenditure. I cannot speak for the district auditor—it is not my place to do so—but were he to say that, any sane person would agree. However, we are faced with such nonsensical action.
  I care deeply about the fact that Scottish Members should be seen to be participating in unitary Parliament activities, and I hope that English Members will understand that that is my sole motive for speaking. If this legislation were acceptable in England and Wales, the probability is that it would eventually find its way to Scotland.
  Mr. Albert McQuarrie: I am sure that my hon. Friend will agree that the fact that the Bill is unacceptable is shown by the three examples, quoted widely in the press, of Derek Hatton, Ted Knight in Lambeth, and Red Ken Livingstone in the GLC. There are no greater examples of councillors disregarding the Government's legislation.
  Mr. Walker: I thank my hon. Friend for his intervention, although he has rather pre-empted what I was going to say at the end of my speech.
  The Bill has not been caused by the Labour party's urgent desire to change things. Its Government had every opportunity to do so between 1975 and 1979, but did not. The Bill has come about because the Labour party sees it as an opportunity to gain publicity, to try to encourage those councillors who have deliberately set out to flout the law. The councillors made a virtue of what they were doing. They have sought and obtained massive publicity and they believe that by doing this they will at the end of the day find themselves forgiven and that somehow a Labour Government will rashly make a pledge that, in retrospect, the councillors will only be admonished. That is a mistaken and foolish attitude. I know that the Bill will get substantial publicity, but I do not believe that it is in the interests of the House to suggest that people who
  1218
  deliberately flout the law having been warned that they are doing so should be let off. To agree to that is to put democracy at risk.
  11.26 am
  Mr. Robert N. Wareing: I congratulate my hon. Friend the Member for Liverpool, Garston (Mr. Loyden), who is my most distinguished constituent, on introducing the Bill which will give assistance not only to many people thoughout the country but to people who, in voluntary service, put themselves forward as councillors. It will do so immediately, and is immediately needed by many. The cases of Roberts v. Hopwood in Poplar in 1925 and of the Clay Cross councillors have been mentioned, and one would have thought that, after Clay Cross, legislation would have been introduced by a Labour Government to reimburse those councillors for what happened in 1973. However, under the Tory Government the situation has become not better but worse. As a result of the Local Government Finance Act 1982, private auditors may now take councillors to court.
  We have often asked in this context about the meaning of "unlawful". It was established as long ago as 1848, in a case involving the Lichfield corporation, that even where a local authority funds a service that in all other cases is legitimate, it is open to a district auditor to argue that the local authority is spending too much on that service. That is the most undemocratic feature of the system.
  It is said that the district auditor can decide when a local authority has abused its powers, but who is to say what an abuse of powers is? Parliament has never defined the word "abuse" in relation to the principle of ultra vires.
  Mr. Cash rose—
  Mr. Wareing: I am sure that the hon. Member, if he catches your eye, Mr. Deputy Speaker, will be able to make his point later.
  Parliament has not defined the principles according to which district auditors should act. They have been created haphazardly. As a result, councillors, who volunteer—they do not receive enormous salaries—to carry out the mandate on which they were elected, are forced to put their jobs, their livelihoods, their accommodation and even their marriages on the line. Conservative Members should think seriously of the repercussions that must be faced by councillors, whether in Liverpool, Lambeth or Tameside, who might have been faced with similar circumstances in the 1970s.
  Mr. Terry Fields: A catalogue of so-called red names of people who proudly stand up on behalf of those who elect them has been given. Would by hon. Friend like to comment on people such as John Hamilton, who has a Church background? His conscience-stricken situation at the moment is whether he should break the law or break the poor in Liverpool. He has come down firmly on the side of the people who elected him. He is facing the law and everything else to do the right thing on behalf of the people of Liverpool.
  Mr. Wareing: I fully appreciate that. The leader of Liverpool city council, Councillor John Hamilton, a Quaker, has fought all his life for the people he represents. He knows what it is to live in poor accommodation. He has to work for his living —no shares on the stock exchange to fall back on for him. He drives to the council

  1219
  chamber in nothing more than a corporation bus. He knows about the poverty and problems of people in the area. He is a noble Christian gentleman, who, if he were a member of the Tory party, would be held up as highly virtuous by it, which, of course, he is.
  The courts have been given the maximum discretion concerning abuse of powers. That has created the maximum of uncertainty. I know from my experience as a Merseyside county councillor that we are given contradictory advice from counsel. Because of the powers that have been given to district auditors, councillors have to shop around for counsel to tell us what we want to hear. The statutory powers are said to be exercisable by local authorities "as they think fit" or "for any purpose", and have been construed by the courts as having "implied limitations". One of the first things that I heard when I was elected to Merseyside county council was that I had to be careful to abide by my fiduciary duty and that the fiduciary duty was always to the ratepayer. However, in tackling problems on Merseyside and other deprived areas, we must remember that many of our electors are not ratepayers.
  Why should only ratepayers have fiduciary duty owed to them by councillors? Do not councillors owe a fiduciary duty to the whole population in their area? Do they not have a fiduciary duty to the electors to carry out the mandate on which they were elected? Is it not a breach of fiduciary duty when a Liberal-controlled Liverpool city council fails, as it did in the 1970s, to implement the Chronically Sick and Disabled Persons Act 1970 as it affected telephones for the handicapped? Is it a breach of fiduciary duty when a council fails to provide decent housing, decent health centres and decent schooling for the local population? The trouble is that the district auditor does not know how to decide what laws should be enforced and what laws should not necessarily be enforced.
  The advice that is given to local authorities is always equivocal. Counsel told us in Merseyside when we were implementing our electoral pledge to reduce bus fares, which has been highly successful and has increased passenger use by 27 per cent. since 1981, that, in carrying out our electoral mandate, we might offend the fiduciary duty that we owed the ratepayers. The Labour party has had increasing support as a result of that policy, but those who elected us in 1981 had a right to expect that we would carry out our fiduciary duty to all of our electors, not just those who pay rates.
  When we talk about fiduciary duty in regard to finance, do not pensioners, the disabled and the poor pay taxes? Even under this miserable Tory Government, who have reduced rate support grant from 61 per cent. of revenue to 46 per cent., is not that 46 per cent. provided by taxpayers —those who pay VAT or customs duty on alcohol or tobacco? Do not pensioners, the disabled and those on rent rebate also contribute to the public fund through taxation? Do we not have a fiduciary duty to them? The law has not a leg to stand on. It is a good example of the old adage that the law is an ass.
  Mr. Watts: Will the hon. Gentleman give way?
  Mr. Wareing: Only if the hon. Member is brief.
  Mr. Watts: Does the hon. Gentleman agree that a local elector has the right to make an objection to an item in the accounts? It is not restricted to ratepayers. Electors who contribute as taxpayers also have that right.
  Mr. Wareing: I am talking about fiduciary duty. When the county solicitor advised county councillors, who were opposing Great Universal Stores, which wanted to prevent the county from reducing fares—we won the case—we were told of our fiduciary duty to the ratepayer. It was ludicrous. Officers were telling us that, if we spent £157 million, we might just be within our fiduciary duty, but that if we spent £165 million, which we determined that we would spend, we would somehow or other be ultra vires. What is ultra vires and what is intra vires is decided not by electors, who should have the ultimate sanction, but by judges in court where councillors have to prove their innocence. That is the only time when people go before a court of first instance and have to prove their innocence. They are not regarded as innocent until proven guilty.
  Councillors are unique among people elected to public office in being put under such liability. When the Secretary of State for Transport came humbly on a Friday at 11 am a few weeks ago to apologise to the House after having been found guilty and unreasonable in the courts by imposing higher tolls on users of the Severn bridge, we accepted his apology. We criticised him and attacked him politically, but we did not say that henceforth he must give up his house, his car, and his golf sticks, and that he must be disqualified from holding office.
  The Secretary of State should be disqualified for tearing our transport system apart. Our sanction on him is the general election, and that is the only sanction that there should be on councillors, whether Tory or Labour, who attempt to carry out their mandates. Councillors in Liverpool and Lambeth are faced with class legislation that is throttling local democracy, and ensuring that we become the most centralised state in Western Europe. Indeed, there is not a single instance of that sort of power being given to district auditors outside the United Kingdom.
  We are told that what is right for the Secretary of State for Transport when he breaks the law, not once, but three times, is not right for councillors. There is and should he only one sanction and that is the sanction of democratic elections.
  11.40 am
  Mr. John Watts: The hon. Member for Liverpool, Garston (Mr. Loyden) spent little time on the merits of his Bill, which is not surprising, as it has few. Instead, we heard a tirade against the Government for waging a war against the rights and liberties of the British people, and an accusation that we have spent seven years attacking local democracy. The reality is different. Recently, throughout the country, Labour groups on local councils have been taken over by militant Marxists. The occasion when the now noble Lord, Lord Mackintosh, was replaced by Mr. Livingstone as leader of the Greater London council may be a good example of that.
  Mr. John Fraser: What is a Marxist?
  Mr. Watts: I generally leave matters of socialist theology to the Labour party. If the term "Militant" is more acceptable to Labour Members, I shall use that. It is well understood, especially in Liverpool, and I do not think that it can cause misunderstandings.
  The example of Mr. Livingstone becoming leader of the GLC should serve as a warning to the right hon. Member for Islwyn (Mr. Kinnock) about what may happen

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  to him if Mr. Livingstone succeeds in replacing the right hon. Member for Brent, East (Mr. Freeson)at the general election.
  The concept of service to the community, which has always been the underlying principle of local government, has been placed on the back burner as Labour councils have increasingly looked to local government as a platform from which to attack the Government of the day. Concern for the community, which the council is elected to serve, has been a secondary consideration. The GLC sought a much wider role than that within its statutory responsibilities. Terrorists were invited to our capital city, to the disgust of most Londoners. That had nothing to do with the legitimate responsibilities of the council. Millions of pounds of ratepayers' money has been wasted on political propaganda, and millions more have been squandered on worthless Left-wing causes which have tarnished the description "voluntary organisation". More recently, we have seen cynical political attacks to bring chaos to services and insolvency to some of our great cities.
  Mr. Wareing: If so much chaos has been created by Left-wing councils, should not the electors, rather than an unelected district auditor, get rid of them?
  Mr. Watts: I accept part of the hon. Gentleman's point. Indeed, if the proposals for the reform of local government finance, which my right hon. Friend the Secretary of State for the Environment has introduced, are implemented, local authorities will be much more accountable to their electors, and the sanction of the ballot box locally will be much more effective than it has been recently.
  We have seen deliberately unbalanced budgets, and the wilful refusal even to set a rate. Many of those Left-wing loonies are caught in a time warp. In their own tiny minds they are acting out the circumstances of Russia in 1918. They see this as their opportunity for a great Socialist revolution.
  Mr. Wareing: On a point of order, Mr. Deputy Speaker. I ask for your protection. I did not know that district auditors' powers extended as far as Moscow. The hon. Gentleman is dragging in many irrelevancies which are taking up our time.
  Mr. Deputy Speaker: I was distracted and was not listening to the hon. Gentleman, but I hope that he will relate his remarks to the Bill.
  Mr. Watts: I was picking up some of the points made by the hon. Member for Garston, who alleged that local government democracy has been under attack from the Government whom I support. I have sought to correct that, and to explain how I see what has been happening in local government —the context in which some Labour councillors are fearful of the sanctions of disqualification and surcharge.
  Unfortunately, the activities that I outlined are not harmless pursuits, such as cavaliers and roundheads, or reenacting the American civil war. People who are unlucky enough to live in areas which are subject to the yoke of such authorities suffer when chaos is brought to the services that they require. Those disturbing trends are of
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  relatively recent origin and, mainly, go back to the death of moderate socialism at its defeat in the 1979 general election.
  I first entered local government 12 years ago, when Hillingdon council was Labour controlled. It was almost unthinkable that any Labour authority, let alone a Tory authority, would seek to break the law in pursuing its policies locally, however much it disagreed with the constraints upon it. Earlier the House was reminded of the one exception of Clay Cross. Now, unlawful action is fast becoming the norm, and for that reason the courts are increasingly becoming involved in local government affairs.
  The power of surcharge and disqualification is not new, but the willingness of many loony Left-wing councils to embark upon courses of action which render their members liable to sanctions is new. The change has come from Labour council members who are willing to place themselves in circumstances where they may be subject to those sanctions, in the pursuit of some sort of political martyrdom.
  Mr. Cash: Does my hon. Friend agree that that means that those local authorities have an absolutely clear idea about what they are doing? Every example shows that they have every opportunity to rectify their actions, because they are given warning after warning and negotiations are protracted. Does he agree that it is an absolutely clear-cut deliberate policy to undermine local democracy?
  Mr. Watts: My hon. Friend is absolutely correct. Deliberate decisions are taken to embark on courses of action. I doubt whether hon. Members can recall any instance of a councillor being subject to surcharge or disqualification through unwittingly breaking the law. District auditors have sought to apply that sanction in instances where councillors have deliberately embarked upon a course of action which they know to be unlawful.
  Mr. Terry Fields: The hon. Gentleman is speaking in ignorance. In Liverpool, councillors do not formulate policy. The rank and file members of the district Labour party give the brief to the councillors. Liverpool has total democracy and total accountability. The pressures on councillors are much greater, because those pressures come from the rank and file members.
  Mr. Watts: The hon. Gentleman reinforces the powerful point just made by my hon. Friend the Member for Stafford (Mr. Cash). The attack on local government democracy arises not from this Government, but from the anti-democratic tendencies of the Labour party. The decisions of the general management committee and its mandate to pursue courses of action govern those decisions, not the councillors' perception of their duties to the electorate. I understand local democracy to mean that councillors are elected by local voters and that their duty is to those electors and not to a district management committee of the Labour party.
  Mr. Cash: Does my hon. Friend accept that the hon. Member for Liverpool, Broadgreen (Mr. Fields) has completed the circle for us? He has told us that trade union activity gives rise to breaches of law. Does my hon. Friend accept that it is the trade unions in Liverpool who have agreed to bail out the councillors and that that is where the problem arises?
  Mr. Watts: The democracy of which we speak and which the majority of people understand is a different animal from democracy as defined by Militant members of the Labour party.
  Mr. Jeremy Corbyn: I regret that I missed the speech of the hon. Member for Stafford (Mr. Cash), but I have heard the speech of the hon. Member for Slough (Mr. Watts). If local councillors are elected by local people on a specific political programme put forward by a political party, why should they, in the hon. Member's terms, be contolled by the district auditor and the Secretary of State for the Environment, and not by the wishes of the local people who elected them in the first place?
  Mr. Watts: I shall deal with that point more fully later in my speech, but the quick answer is that councillors have no right to get themselves elected on the basis of promises which they cannot carry out without breaking the law.
  In my 12 years in local government, which included six years as leader of the London borough council of Hillingdon—
  Mr. Wareing: I would not boast about that.
  Mr. Watts: I am happy to boast about it, because during that time we did many things of which the hon. Member for Liverpool, West Derby (Mr. Wareing) would approve. Within the financial constraints imposed upon us, we had a deliberate policy to develop our social services. We had special success in developing care for the mentally handicapped and the mentally ill. If the hon. Member for West Derby were to examine the history of the development of social services in Hillingdon, I hope that he would be generous enough to acknowledge the major strides that were made during that period. I do not take all personal credit. It was the democratic will of the Conservative group of the council, supported by the electorate.
  During my years in local government, especially when I was leader of Hillingdon council, I did not feel cowed by the sword of Damocles of surcharge and disqualification which Opposition Members have said hangs over councillors. The idea of thousands of councillors in constant fear of bankruptcy because of the excessive powers of the district auditor is ludicrous. However, I was aware of the special duty of care that I owed to my ratepayers in determing expenditure of public money. There was an ultimate penalty for transgressing and not fulfilling that duty. Surcharge and disqualification are no more a threat to a councillor who goes about his duties in a lawful manner than the death penalty for murder is a threat to a law-abiding citizen who has no murderous intent.
  Councillors can respond to the needs of their constituents, which is what we did for almost eight years in Hillingdon, but they must do so by lawful means. Election to a local authority does not confer the right to raid the pockets of ratepayers without limit or to spend the loot indiscriminately.
  The answer to the point raised by the hon. Member for Islington, North (Mr. Corbyn) is that it is no good making election promises that cannot be fulfilled by lawful action and then complaining that the law frustrates the democratic mandate. The hon. Member for West Derby said that councillors are forced to break the law to carry out their
  1224
  mandate. They are not forced. They impose that difficulty upon themselves by making promises which they cannot fulfil within the constraints of the law.
  There is a duty on all who participate in the democratic process to uphold the rule of law. I was disturbed by the speech of the hon. Member for Liverpool, Walton (Mr. Heffer) and his doctrine that it is legitimate to defy bad law. That is a highly dangerous principle, which strikes at the roots of democracy. There are political differences about what constitutes bad law or bad government. but bad laws enacted by bad Governments can be changed through the ballot box. However, it is the ballot box at a general election that provides the opportunity, not the so-called local mandate. If individuals feel that in all conscience they cannot obey the law it is a matter for them to decide whether to break it, but if they do so they must accept the consequences. If breaking the law involves the unlawful expenditure of other people's money, it is right that that expenditure should come out of their pockets.
  Mr. Heifer: The councillors in Liverpool have broken no law. It is interesting to note that since this matter has arisen the Government have introduced legislation to set a date for fixing a rate. Prior to that they had no such legislation. What is the hon. Gentleman talking about?
  Mr. Watts: It is remarkable that it has been necessary for us to legislate for a date for a rate to be made, because it was always understood by Tory and Labour local councillors that they should set a rate before the start of the financial year. It was only because of the curious developments in Labour-controlled local authorities during recent years that that legislation became necessary. In answer to the hon. Member for Walton, as I understand it, action was taken against Liverpool councillors not because they failed to make a rate by a specific date. but because by failing to make a rate and, therefore. failing to raise revenue within the new financial year, Liverpool council incurred unlawful loss. The matter is still before the courts. I would rather leave it to the courts to determine the law than give my layman's view on the present position.
  Mr. Simon Hughes: Will the hon. Gentleman also note that a bizarre consequence of the Government's efforts to remedy the problem is that although the Local Government Bill, which is in the other place, provides a duty to do so, it will still not be against the law to set the rate after the end of March? That is not the case in Scotland, and it will not be the case in England. Even the remedy does not achieve what the hon. Gentleman believes is the lawful position. The position is not clear, and it will not be clear even if the Local Government Bill is passed.
  Mr. Watts: I am grateful to the hon. Gentleman for bringing the matter to my attention. I shall examine the Bill when it comes before the House.
  There is no case for the change in the law that is advocated in the Bill. With the increasingly irresponsible activities of Labour councillors, ratepayers need protection which the sanction of disqualification and surcharge can provide. I urge the House to reject the Second Reading of the Bill.
  12.1 pm
  Mr. Stan Crowther: The debate is disappointing in that I have not heard any Conservative

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  Member deal with the central argument. They have talked about many other things, but not about the heart of the matter, which is nothing to do with whether people should be allowed to break the law, but about whether one category of people, alone in our official and constitutional structure, should be subject to personal surcharge in respect of decisions that they make, not as individuals in pursuit of their personal interests, but in an official capacity as elected representatives of the people. Not one Conservative Member has defended that anomalous position. I support the Bill 100 per cent. because it tries to get rid of that long-standing gross injustice.
  It was inevitable that recent events in Liverpool and Lambeth would be mentioned many times in the debate. I do not wish to enter into that argument, because my reasons for supporting the Bill are coloured by events that happened long before now —indeed, many of them happened in the 1930s in other parts of the country. It is a long-standing injustice, and it is greatly to the credit of my hon. Friend the Member for Liverpool, Garston (Mr. Loyden) that he has given the House an opportunity to remove it. I hope that that opportunity will be grasped.
  There is a dispute about whether the law has been broken in Liverpool and Lambeth, even among my hon. Friends from Liverpool. Some say that it has, and some say that it has not. It is for the courts to decide. I shall not join Conservative Members and denounce people for having broken the law when the courts have yet to decide. It is disgraceful that a decision has already been made by the district auditor in advance of a decision by the courts. That is untenable.
  Mr. Cash: The hon. Gentleman says that the decision has already been taken by the auditor. He knows the true position. The auditor is responsible for examining the position and for forming a judgment. He then applies to the court, which makes the decision.
  Mr. Crowther: The hon. Gentleman does not know what he is talking about. The district auditor levies the surcharge. It is then for the people who have been surcharged, if they can afford it, to seek justice in the courts.
  Mr. Wareing: On the question of cost, does my hon. Friend accept that those councillors must pay the cost of obtaining justice through the courts?
  Mr. Crowther: My hon. Friend is right. I am surprised that Conservative Members do not understand how the system works. The Bill tries to remove the injustice of the system.
  I do not defend members of local authorities who deliberately, as a matter of policy, put themselves outside the law. If there are such members—it has not yet been decided —I am not here to defend them. But I am here to defend the great majority of members of local authorities, who do their best to protect the interests of the people whom they represent in the face of immense difficulties, mainly created by the Government, with the threat of surcharge always hanging over them.
  Conservative Members misunderstand the position when they claim that a member of a local authority who does not wish to go outside the law need not worry about the threat. That is simply not so.
  Mr. Simon Hughes: This is an extremely difficult area of law. I believe that I am right in saying that in all cases where local authority members ask for advice from their officers during a council meeting and are given advice which says that their actions carry no risk, they are safe. Only if they go against the advice that is properly given and properly received do they risk disqualification and surcharge.
  Mr. Crowther: The hon. Gentleman is right up to a point, but it goes a little further than that. If the legal officer who advises the council says, "I am not sure ", the councils' action may be illegal or it may not. If the councillors, who genuinely believe that their action is legal, decide to take that action and the district auditor finds them to be acting outside the law, they will undoubtedly be surcharged.
  Mr. Cash: I am glad that the hon. Gentleman made that point, because it reinforces my earlier point that the auditor must assess the position. If he comes to the conclusion that the case should go to the court, it goes to the court and the procedure continues.
  Mr. Deputy Speaker: Order. Before the hon. Gentleman replies to that intervention, may I say that several hon. Members are still waiting to speak. Hon. Members cannot have it both ways. They cannot make repeated interventions and then seek to catch my eye and make a speech.
  Mr. Crowther: I do not wish to pursue the point, but I repeat that the hon. Member for Stafford (Mr. Cash) is wrong.
  Our main cause for complaint is the existence of surcharges. Too many hon. Members, too many Ministers —not only in this Government—and too many senior civil servants tend to regard members of local authorities either as potential criminals or as backward schoolchildren. The real problem is Government attitude, and it is about time that it was changed. By holding out the threat of personal penalty, Parliament is saying that it does not trust the people who are elected to local authorities. Oddly, by implication, it is saying that it does not trust the people who elected local councillors, although they are the same people who elect us. We should have a little more confidence in those who are elected to local authorities under our democratic system.
  It is fundamentally wrong that thousands of intelligent, conscientious and hard-working people, whose only concern is the welfare of their fellow human beings, should have to live under the shadow of a surcharge if they inadvertently step outside the narrow bounds of legal expenditure. It is wrong to pretend that such people are not threatened. It is even worse that elected representatives are placed at the mercy of unelected, unaccountable district auditors, whose actions cannot even be challenged or questioned in the House.
  The Secretary of State has no responsibility for the actions of the district auditors. It is disgraceful that people who are not accountable, even to the Secretary of State, can find a councillor guilty without a trial yet cannot be called to account for it unless that councillor is able to take the district auditor to court and have the decision reversed, at enormous expense.
  The greatest wrong of all is that councillors should be placed in the position of having to make a choice between

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  accepting the verdict of the auditor, which may well render them bankrupt and put them out of their homes, or trying to raise the finance to enable them to go to the High Court to obtain justice. Where else in English justice do people have to prove themselves not guilty? Where else are people presumed guilty until proved innocent?
  The large number of Ministers who have had to be taken to court for committing illegal acts has brought that inequity into the public eye. People are beginning to wonder about this sharp contrast. I am not sure at the moment whether the Secretary of State for Transport or the Secretary of State for Social Services holds the record for the number of appearances in court. They have both had a large number of appearances. People are asking why a Secretary of State who has committed an unlawful act on a massive scale should suffer no penalty whatever while a councillor who, in the opinion of the district auditor, has just gone outside the legal limit of expenditure may well find himself bankrupt and lose his home. That situation is becoming a matter of public concern.
  But the contrast goes much wider than that. There is no other category of people in that position. Let us consider the contrast with the police, for example. There has recently been a regrettable increase in the number of people who have had to take the police to court to secure damages as a result of assault, wrongful arrest, false imprisonment and so on. Only the other week a highly respectable woman was awarded £26,000 in damages against the Metropolitan police commissioner as a result of some quite shameful acts committed against her by some officers. We all know that the Metropolitan police commissioner will not pay that £26,000. Much more to the point, neither will those officers who committed those disgraceful acts. The public funds will pay that £26,000, yet that is a form of public expenditure that is a direct result of wanton criminality by certain police officers. On the other hand, if a local authority spent £26,000, not as a result of some crime committed by its officers, but to provide some kind of amenity for the public which, in the district auditor's opinion, it did not have the legal power to provide, the councillors will be asked individually to pay that £26,000 out of their own pockets. There is no way in which that can possibly be justified.
  Like other hon. Members, I have some experience in local government. I was a member of Rotherham borough council for about 17 years and I am probably the only hon. Member who represents a town of which he was twice elected mayor, so I have a fair amount of experience. Incidentally, one of the daftest things that Liverpool has done is abolish the office of lord mayor, because the mayoralty is the symbol of civic pride. It is the focal point of municipal independence, which many of us wish to defend against the Government. However, that is a slight digression.
  I can assure hon. Members that local authorities are put off doing that which they know would be in the interests of their people because of a possible doubt about whether the expenditure might be just outside the legal limit, which would mean that they would risk finding themselves surcharged. It is not a question whether such spending is really unlawful, but whether the district auditor thinks that it is unlawful.
  I must admit that I was sometimes impatient with some of my over-cautious colleagues—as I thought then—who were unwilling to take a risk in such circumstaces. But I recognise that it is not an act of cowardice to decline
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  to take such a risk when a councillor with a family and a mortgage has all kinds of commitments to meet. He is not being cowardly when he steps back from the possible risk of surcharge. That results In authorities not carrying out many worthwhile projects, because there is just that danger. I understand the dilemma that people face. They should not be placed in that position.
  That is the worst feature of the surcharge system. The real problem is not that some may —I do not know whether councillor Hatton and his friends have deliberately chosen to break the law; that is a matter to be decided —have broken the law, but that people who have no wish to break the law but quite properly wish to go to the limit of legality in doing their job are prevented from doing so because of this threat.
  As other hon. Members have pointed out, there is ample scope within the present civil and criminal law to deal with any unlawful acts that may be committed by local authorities and their members. Indeed, the very fact that the courts have managed adequately to deal with law-breaking on a large scale by Secretaries of State without surcharging them must prove that point.
  This is an outstandingly good Bill. It is long overdue, and I hope that it will have the full support of the House.
  12.16 pm
  Mr. William Cash: The Bill should be rejected by the House. When we get down to it, we are dealing with the rule of law and respect for the law. The Bill proposes to take away the real teeth in the Local Government Finance Act 1982 and the Local Government Act 1985, because they say that after a series of protracted negotiations, when advice has been tendered and people have deliberately decided that they will do what they want, they are then surcharged, in the light of a deliberate and determined effort to make sure that they do not comply with the reasonable requirements of the law.
  Basically, the Bill is an attack on lawful and responsible local government. The hon. Member for Liverpool, Garston (Mr. Loyden) gave us a brief introduction to the history of law relating to audits and referred to the ll834 Act. I would prefer to go back a little further and remind the House that this goes back as far as Aristotle, believe it or not. He said:
  "Inasmuch as some of the magistracies handle large sums of public money, there must be another office to receive and account and subject it to audit, which must itself handle no other business, and these officials are called auditors by some people, accountants by others, and so on."
  Therefore, it is interesting that, although the precise provisions set out in the local government legislation with which we are concerned today have been enacted fairly recently, the objective of an auditor and the need to contain the irresponsible misuse of money — unlawful expenditure—by local authorities has been know n from the days of ancient Greece. Therefore, it must be clear to all that these provisions should not simply be knocked out because Labour Members want to achieve their own political objectives. That is what we are talking about. The Bill is a political attack on the need for reasonable public expenditure.
  The hon. Member for Garston referred to the hangover from Victorian legislation. As public expenditure grew. provisions were laid down in the 1834 Act and the legislation that followed to ensure that people used their money responsibly. How can people act properly with this

  1229
  threat hanging over them? The simple answer is that they can do so by behaving responsibly and reasonably. Every case has been well set out in the minutes of the local authorities concerned. The details have been given to the auditors and there have been negotiations. I challenge Labour Members to suggest that there has been any peremptory action or unreasonable haste by an auditor.
  Mr. Tony Banks: I remind the hon. Gentleman of the threat of the district auditor which curtails reasonable action by the council. I have a clear example. The GLC hoped to put some homeless and down-and-out people in the Charing Cross tunnels, which came within the responsibility of Westminster city council. There was a cleansing problem. As cleansing was a matter for Westminster city council, there was the possibility that GLC members would have been surcharged if they had taken that reasonable action. The threat of surcharge stopped them from doing so. It is not a matter of whether councillors are doing something wrong. It is a matter of whether they are prevented from doing something because of the threat of surcharge.
  Mr. Cash: The hon. Gentleman is confused about the difference between the threat to an unlawful act and the threat to a policy which councillors would like to pursue but which may not be authorised by law. That is where the problem lies. I do not deny for a minute that there are serious problems in Greater London and Liverpool. They should be sorted out. People should have a reasonable amount of money available to deal with them. The question is whether, in implementing policies, the local councillors have been reasonable.
  As the hon. Member for Newham, North-West (Mr. Banks) comes from a London constituency, I hope that he will not mind if I give a few instances of the manner in which the Inner London education authority has behaved. It has broken new ground in finding ways of spending money. My examples are directly relevant to the question whether a surcharge should or could be levied against councillors if and when they use their powers unreasonably. The hon. Member for Newham, North-West says that there is a point at which it is difficult to know whether people have committed an offence. I understand that. Equally, when advice has been tended, policy takes over. It is a case of saying "We know what we want. We shall do it anyway. We have had advice." I shall not mention the chambers concerned, but I am well acquainted with the lawyers who provide good information on both sides of the legal spectrum for public authorities and ratepayers. They get the balances fairly right. It is a case of councillors, having been faced with good advice, deciding to go ahead anyway.
  The Inner London education authority has spent £750,000 on party political advertising; five officers on the equal opportunities staff cost £86,000 a year; 12 staff of the multi-ethnic education unit cost more than £120,000 a year; and the Karl Marx centenary celebrations cost £35,000. ILEA has spent money on the "Class test" in the class room to identify the social classes of London schoolchildren. I am prepared to concede that some of that expenditure gives rise to questions about whether it is outside or inside the powers.
  Recently there has been an interesting debate and legislation has been passed with respect to sections 137
  1230
  and 142 of the Local Government Act 1972. The essence of the argument then was similar to the argument that we are considering now. There comes a point at which it is clear that the courts know what is political when they see it. Despite my enthusiasm for the legislation dealing with political advertising—it is important legislation in its own way—at the end of the day the courts will say, "We know what is political when we see it." A number of well-established cases in the House of Lords going back a long way say that. There are parameters within which it is preferable for councillors to be properly advised so that they can make a judgment before taking action giving rise to an auditor's inquiry.
  Labour Members have specifically referred to Liverpool. The hon. Member for Liverpool, Walton (Mr. Heffer) spoke just about as much humbug as I think I have heard at any time since I had the honour to become a Member. I shall do my best to quote him accurately. He went on about laws that are bad when they are class laws or political laws. He categorically stated that they should be broken. He said that people should make themselves martyrs. He referred to the suffragettes, but I can see no comparison between the suffragettes and Ted Knight. Perhaps the hon. Gentleman will elucidate in due course.
  Mr. Simon Hughes: Does the hon. Gentleman believe that women would have won the vote as quickly as they did—it took a long time—if the suffragettes had not regularly broke the law?
  Mr. Cash: The short answer is that we do not know.
  Mr. Hughes: What does the hon. Gentleman believe?
  Mr. Cash: I believe that the pressures building up would have ensured that women received the vote, notwithstanding their activities.
  Mr. Deputy Speaker: Order. The hon. Member will please return to the Bill.
  Mr. Cash: I am sure that you will understand, Mr. Deputy Speaker, that I was merely responding to an intervention that was a little beyond the terms of the Bill.
  Mr. Deputy Speaker: Order. The hon. Member was complaining that reference had been made to the suffragettes. He then wanted to go into the history of the suffragette movement.
  Mr. Cash: I unreservedly withdraw my remarks in so far as they imply any questioning of your judgment, Mr. Deputy Speaker.
  I am glad that the hon. Member for Walton and the right hon. Member for Chesterfield (Mr. Benn) support the motion of trying to change the law rather than that of breaking the law. That is important, because some Labour Members have implied that they are more interested in ascertaining whether it is possible to railroad legislation rather than seek to change it. I happen to disagree profoundly with what is being said about breaking the law. I profoundly disagree also with the objects of the Bill. However, I accept that it is the right of hon. Members to seek to change the law. None the less, I do not think that the Bill has the slightest chance of being enacted, but only time will tell.
  The right hon. Member for Chesterfield asked an important question. He observed that the heart of the issue is to determine who is responsible to whom. The auditor is responsible to the court and to the ratepayers. I shall deal

  1231
  with the fiduciary duty of councillors to their ratepayers, but first I shall refer to a comment which I have come across in an article which appeared in The Guardian of 10 September 1985 concerning Ted Knight of the Lambeth council, in which, according to the newspaper, he referred to the auditor in the following terms:
  "This unaccountable state official has the power to act as judge and executioner."
  Bearing in mind the time that Mr. Knight has spent on and around this subject with his officials and legal advisers, he should know that that is clearly not the case.
  The recent report of the Audit Commission states:
  "Auditors have the legal power to obtain whatever information they feel necessary to carry out their duties, and have a statutory function in matters involving illegality or losses caused by deliberate or inadvertent misconduct."
  This is relevant to Mr. Knight's remark.
  "They are ultimately answerable to the courts in exercising these powers. If auditors consider that a local authority is doing, or has done, something which it has no legal right to do, they will first discuss the situation with the authority. If they then feel it necessary to go further, they can apply to the court, either the High Court or the county court, depending on the size of the sum involved, for a declaration that the item concerned is unlawful. Auditors can take this step as soon as they determine."
  This takes up the remarks of the hon. Member for Rotherham (Mr. Crowther) about when the statutory function of the auditor begins. He might like to refer to section 15 of the Local Government Act 1982, where the statutory duties of the auditor are set out clearly.
  The Audit Commission's report continues:
  "Auditors can take this step as soon as they determine that an authority is spending money illegally. They do not have to wait until the end of the year or for objection from a ratepayer. But they have no standing to apply for an injunction while the case is decided. The court can then, if it agrees, order the rectification of the accounts. It may also order the unlawful expenditure to be made good by those responsible for incurring it. If those responsible are members of the authority and the amount involved exceeds £2,000, the court may order their disqualification from membership for a period of five years."
  The most important point then follows. The report states:
  "If the unlawful action is inadvertent and there has not been any unacceptable loss of the authority, there might be no useful purpose served by going to court. It might only be necessary to ensure that the error does not occur again."
  As I have said in interventions and repeatedly in my speech, a protracted—rather like my speech—series of negotiations is involved. It is important to remember that, because a series of warnings has been given, those concerned do not have any justification for complaining when the chopper comes down at the end of the day. As the report states:
  "However, if they decide that there is a loss due to deliberate misconduct or failure to account for money or goods, the auditors can themselves order those concerned to repay the money."
  How do these provisions arise in their application to councillors, and what will the effect of the Bill be on those concerned? The answer lies in schedule 1.I am concerned that there has been little reference in the debate to what is contained in the Bill and that, instead, there have been many generalisations. In fact, we are being asked to accede in principle to the taking away of a real opportunity for ratepayers to take appropriate action to ensure two things: first, that there is no unlawful expenditure, and, secondly, that there is no wilful misconduct in the way that money is spent.
  It is important both for this House and for those outside to know what is going on. Section 19 of the Local Government Finance Act 1982 clearly states:
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  "Where it appears to the auditor carrying out the audit of any accounts under this Part of this Act that any item of account is contrary to law he may apply to the court for a declaration that the item is contrary to law except where it is sanctioned by the Secretary of State.
  (2) On an application under this section the court may make or refuse to make the declaration asked for, and where the court makes that declaration, then, subject to subsection (3) below, it may also—

  (a) order that any person responsible for incurring or authorising any expenditure declared unlawful shall repay it in whole or in part to the body in question and, where two or more persons are found to be responsible, that they shall be jointly and severally liable to repay it as aforesaid;

  (b) if any such expenditure exceeds £2,000 and the person responsible for incurring or authorising it is, or was at the time of his conduct in question, a member of a local authority, order him to be disqualified for being a member of a local authority for a specified period; and

  (c) order rectification of the accounts."

  Surely any reasonable person would say that where it was clear that there had been unlawful behaviour, the person involved should be subject to those sanctions. However, and this is important, the provision in subsection (3)—by this time the matter has gone past the auditor, the behaviour has begun to bite and all sorts of negotiations are taking place —is that
  "The court shall not make an order under subsection (2)(a) or (b) above if the court is satisfied that the person responsible for incurring or authorising any such expenditure acted reasonably or in the belief that the expenditure was authorised by law."
  In other words, that that person had received advice that he was right to take such action.
  Mr. Rob Hayward: Is that not the very point referred to by Opposition Members regarding the "Fares Fair" policy where the advice given did not make it clear whether the policy was within or without the law?
  Mr. Cash: My hon. Friend is right. I have no doubt that during my speech I shall refer to that.
  Some interesting statements have arisen in the courts. Other interesting statements have been made by the auditor in Liverpool which clearly illustrate the great care taken at all times. I hope to quote the remarks of Mr. Stamford on that matter. Indeed, with the indulgence of the House, I intend to refer eventually to the Clay Cross case and what Lord Denning had to say about that—after all, that fair-minded man is often referred to by Opposition Members as someone who can be relied upon to help the poor and the needy.
  Sir Geoffrey Finsberg: When my hon. Friend talks about Clay Cross, will he remind the House of the odd remarks of the then Labour Law Officer, Mr. Sam Silkin, who did his own career no good by the way in which he tried to wriggle over Clay Cross?
  Mr. Cash: I am grateful to my hon. Friend. I have ample material among my papers to enable me to go into that matter, which turned out to be a very miserable and third rate situation.
  The point I am making is not that the court may not, but that it shall not make an order. That is what we call a mandatory provision. It is not permissive. It is not that it may, but that it shall
  "not make an order under subsection 2(a) or (b) above if the court is satisfied that the person responsible for incurring or authorising any such expenditure acted reasonably or in the belief that the expenditure was authorised by law, and in any other case shall have regard to all the circumstances"—

  1233
  I hope that hon. Gentlemen are listening, because I find this interesting—
  "including that person's means and ability to repay that expenditure or any part of it."
  What does the Bill actually do? Believe it or not, it repeals that provision and makes the position worse for the councillors in Liverpool. I sincerely hope that the newspapers in Liverpool will take careful note that the hon. Members for Walton, for Garston and Liverpool everywhere else are making the position infinitely worse than at present. Furthermore, for the ratepayers of Liverpool the business of surchage and disqualification cuts both ways. There are many circumstances in which ratepayers—perhaps Labour ratepayers, or even SDP ratepayers—
  Mr. Simon Hughes: Or Liberal.
  Mr. Cash: Yes, or Liberal ratepayers, want to challenge things done by Conservative councillors.
  What happens under the Bill? Section 19(4) of the Local Government Finance Act 1982 says:
  "Any person who has made an objection under section 17(3) (a) above and is aggrieved by a decision of an auditor not to apply for a declaration under this section may—(a) not later than six weeks after he has been notified of the decision, require the auditor to state in writing the reasons for his decision; and".
  In other words, he has the opportunity to find out from the auditor what he is up to and why. It goes on to say that he has the right to
  "appeal against the decision to the court."
  We are back to the court. It is not just the auditor. The whole farrago of nonsense that we have heard from the Opposition about the wicked district auditor is nothing more than a load of rubbish. It is the court which has the power—[Interruption.] The hon. Member for Garston made a derogatory remark from a sedentary position. That is only because I am having a go at his Bill. I am relying on the Act of Parliament which he is seeking to repeal. If he wants to intervene and have words with me on this subject, I shall be happy to listen to him.
  Mr. Loyden: I resist the temptation.
  Mr. Cash: I think that this is a good moment to pay tribute to a remarkable book, "Local Government Audit Law" of which the hon. Member for Garston obviously does not have the faintest notion.
  Mr. Loyden: Yes, I have.
  Mr. Cash: If he has, I would be surprised, because the Bill that he is enacting is having a devastating effect on his ratepayers.
  Mr. Hayward: My hon. Friend is talking about the ratepayers in Liverpool and he referred to the Liverpool Members of Parliament who had spoken. Is it not significant that the hon. Member for Liverpool, Mossley Hill (Mr. Alton), who previously represented Liverpool, Edge Hill, has not been present at any stage of the debate to defend the interests of his own constituents?
  Mr. Cash: Indeed, he reminds me of Prince Rupert, who made a rather serious mistake at the battle of Edgehill some time ago. I am grateful to my hon. Friend for his intervention.
  The subsection goes on to say:
  "on any such appeal the court shall have the like powers in relation to the item of account to which the objection relates as if the auditor had applied for the declaration".
  1234
  At least over one provision—I have others—there is no doubt that the Bill is a farrago of nonsense.
  The Bill is about letting off people who have clearly done many things which any ordinary person of common sense would say should not have been done. Such people have been given ample warning. They have engaged in what amounts to wilful misconduct. The Bill is dealing with something serious.
  I pay tribute to the right hon. Member for Chesterfield, because he put his finger on the point, although I find myself about 360 deg away from his conclusions.
  Mr. Simon Hughes: It must be 180 deg.
  Mr. Cash: The right hon. Member for Chesterfield sometimes puts me in such a whirl that I go through a full 360 deg. I take the hon. Gentleman's point.
  The right hon. Gentleman put his finger on the point, when he spoke about the real question to be decided responsibility. I recall what he said. He asked who was responsible to whom. An enormous myth has developed about who is responsible to whom in relation to the auditor's functions. His responsibility is to the courts and to the ratepayers.
  I wish to comment on the fiduciary relationship between ratepayers and councillors. The position was aptly summarised in the GLC "Fares Fair" case, to which my hon. Friend the Member for Kirkwood (Mr. Hayward) referred. The point derives directly from the right hon. Gentleman's remarks and those of the hon. Member for Liverpool, West Derby (Mr. Wareing). The statement was made by Lord Diplock, who, most regrettably, recently died. He said:
  "It is well established that a local authority owes a fiduciary duty to the ratepayers from whom it obtains moneys needed to carry out its statutory functions and that this includes the duty not to expend those moneys thriftlessly, but to deploy the full financial resources available to it to the best advantage".
  The legal duty of the councillors is being tested when one argues about fiduciary duty. There are a number of potential illegalities to consider. Sections 19 and 20 of the Local Government Finance Act 1982, which it is intended the Bill should repeal, deal with that point. The illegalities include, for example, a failure to make a rate for the relevant period, a failure to make a rate sufficient to meet estimated expenditure, deliberate expenditure during the financial year additional to that estimated for the purpose of making the rate, and so on.
  Liverpool and other councils are making a deliberate and determined effort to ensure that their councillors, who have worked out what their policies should be, get what they want rather than what is prescribed by law. That is the nature of the problem. What lies at the root of the Bill is an attempt to remove the sword of Damocles to which the hon. Member for Garston referred. Anybody else, however, would refer to it as a sensible precaution. If we were to remove the so-called sword of Damocles, what would happen? If I may continue the analogy, the floodgates would open.
  Mr. Simon Hughes: It is not the same analogy.
  Mr. Cash: No, it is not, but it is a similar analogy. The floodgates would open and public expenditure would let rip. That is what Opposition Members want. It is rare for Conservative Members to act as the opposition and to be able to demonstrate the extraordinary behaviour in which the Opposition would indulge if they were to form the next

  1235
  Government. If we repealed the provisions which the hon. Member for Garston wishes to repeal, local government expenditure would let rip and the country would be bankrupt. Liverpool would disappear into the Mersey.
  Mr. Loyden: That is absolute nonsense.
  Mr. Hayward: Will my hon. Friend speculate on which councillors would come through the floodgates to which he referred, and in which order? Will he consider what is happening in Hackney, Greenwich and Lewisham, which are waiting to go through the floodgates? Will he say which of those councillors would go through first, and in what order?
  Mr. Cash: An extremely efficient lock gate keeper would be required to keep control over the boats as they floated over the weir. There are so many of them that, if we are not very careful, we shall be very close to bankruptcy. We have to consider not just the nice technical points but the objectives that underlie the Bill. Political objectives are being pursued by the councils to which my hon. Friend the Member for Kingswood referred. It would be very dangerous to allow the Bill to become law, and I hope that it will not be allowed to make progress. I shall do all that I can to ensure that it does not become an Act.
  I referred earlier to the grounds that have to be considered by the district auditor if it is thought that unlawful expenditure has been incurred. The most important phrases that crop up over and over again are "item of account", "contrary to law", and "failure to bring into account any sum". We have to consider whether the action of local authorities is ultra vires. For a considerable period of time I have had reason to consider the question of ultra vires. I am the first to admit that on occasions it can be a grey area. However, many people have the opportunity to seek the advice of learned counsel and they can come very close to identifying the parameters within which they are allowed to operate. In my constituency of Stafford we are facing an interesting problem over nursery schools. They have been referred to frequently in the speeches of Opposition Members.
  In the Labour party manifesto of 1983, the party set out a policy to make nursery functions a statutory duty. At the moment, it is a power only. I am by no means against nursery education — quite the opposite. However, the problem is what one does when one is faced with a local authority trying to introduce such a policy. This is a graphic example, in a smaller way, of the way in which, by the unreasonable exercise of powers, local authorites in places such as Liverpool and Lambeth attempt to use in the wrong way the powers granted to them by Parliament.
  When a local authority decides—[Interruption.] The hon. Member for Garston would not let me intervene. If he had, that would have reduced the length of my speech dramatically. As I had such a disagreeable reception when I attempted to intervene in his speech, he will not get me to sit down until I feel that it is appropriate to do so.
  In 1983 the Labour party in Staffordshire decided that the provision of nursery education should be a statutory function. We have a special problem in Staffordshire in that there are enormous numbers of nursery schools in Stoke-on-Trent. I want to keep well within the rules of order, and I shall continue to do so because there are such ample opportunities to do so on the back of this extremely poor Bill. The district auditor has recently ruled that he is
  1236
  deeply concerned about the fact that in Stoke-on-Trent, which is where the Labour county council has its strength, surprise surprise, there are five times as many nursery schools as there are in the whole of the county.
  I raised this matter in my by-election and have done so repeatedly since, and I am delighted to see that the district auditor has taken up this matter. Therefore, I regard the Bill as appalling because—
  Mr. Robert Parry: On a point of order, Mr. Deputy Speaker. By speaking about Stoke-on-Trent and Stafford and nursery education there, is not the hon. Member for Stafford (Mr. Cash) bearing away from the Bill? The hon. Member has been speaking for 45 minutes. I have sat in the Chamber for three hours and I have a personal interest in the dabate.
  Mr. Deputy Speaker (Mr. Ernest Armstrong): I can rule only on the point of order. This is a Second Reading debate and therefore wide, but we are listening carefully. It is for the Chair to decide whether an hon. Member is in order.
  Mr. Parry: It is a disgrace.
  Mr. Cash: I was specifically talking about the powers of the district auditor in my constituency, and the hon. Member for Liverpool, Riverside (Mr. Parry) has the nerve to say that he has a personal interest when I am trying to do something to help my ratepayers.
  Mr. Parry: The hon. Gentleman is abusing the House.
  Mr. Cash: What is more, I am trying to protect my ratepayers in respect of the very functions that would be taken from the district auditor under the provisions of the Bill. The hon. Gentleman should be a little more careful.
  Mr. Hayward: The hon. Member for Liverpool, Riverside (Mr. Parry) complained that Stoke-on-Trent and Stafford have no interest in the Bill. Is my hon. Friend aware that the candidate who has been selected to replace the hon. Member for Stoke-on-Trent, North (Mr. Forrester) is herself a Lambeth councillor and would be disqualified if the Act is not amended but would be exempted if the Bill is passed? I am sure that my hon. Friend intends to refer to the fact that the Bill is of special relevance to Stafford and Stoke-on-Trent.
  Mr. Cash: My hon. Friend has made what I can only describe as a brilliant intervention. We are on the very pinhead of the Bill only a few miles from the constituency which I have the honour to represent. I have every intention of taking that matter up, especially as at least one hon. Member has received the most awful treatment from his constituency party. He has been kicked out on reselection—
  Mr. Deputy Speaker: Order. The hon. Gentleman is straying somewhat now. He must stick to the Bill.
  Mr. Cash: I accept your ruling, Mr. Deputy Speaker.
  Schedule 1 would amend section 20 of the Local Government Finance Act 1982. It is important to understand clearly what section 20 does. It provides:
  "Where it appears to the auditor carrying out the audit of any accounts under this Part of this Act—

  (a) that any person has failed to bring into account any sum which should have been so included and that the failure has not been sanctioned by the Secretary of State; or

  (b) that a loss has been incurred or deficiency caused by the wilful misconduct of any person,

  he shall certify that the sum".

  1237
  To my utter amazement the Bill would also repeal section 20(2). It would remove protection from Labour ratepayers as well as from Conservative ones. It provides that a person who has made an objection and is aggrieved by a decision of an auditor
  "may not later than six weeks after he has been notified of the decision require the auditor to state in writing the reasons for his decision."
  I do not know how the hon. Member for Garston included that for repeal. It merely serves to show that he does not understand anything about this matter.
  It is important for us to understand what "wilful miscondut" means. In 1901, it was said:
  "Wilful misconduct means misconduct to which the will is party as contradistinguished from accident, and is far beyond any negligence, even gross or culpable negligence, and involves that a person wilfully misconducts himself who knows and appreciates that it is wrong conduct on his part in the existing circumstances to do or to fail or to omit to do as the case may be a particular thing and yet intentionally does or fails to do it or persists in the act, failure or omission, regardless of the consequences."
  Nothing could be clearer than that. That is the pits of the bottom line. It is absolutely impossible to imagine something which needs the sanction of the law more than wilful misconduct. Section 20 turns on that principle.
  I remain absolutely amazed that section 20 should be repealed. No one who has any genuine belief in local democracy, in the interests of ratepayers or in the fiduciary duty to his ratepayers — both the hon. Member for Garston and councillors should have that — could introduce a Bill which removed from ratepayers the protection that section 20 provides. All this farrago of nonsense is a determined effort to ensure that councils can let rip and do as they please, irrespective of the consequences for their ratepayers and the public at large.
  I await with great interest the response of the hon. Member for Norwood (Mr. Fraser).
  Mr. Loyden: Sit down.
  Mr. Cash: I am tempted to do so quickly because the hon. Member for Norwood will have interesting points to make. I should like him to refer specifically to what he thinks about the repeal of section 20, which deals with wilful misconduct. That puts Labour Members on the line. If they are prepared to repeal the provision and to allow local government expenditure to let rip, as councillors in Liverpool and Lambeth have done, the consequences for their ratepayers would be disastrous. No responsible Labour party could support the Bill. Will the hon. Gentleman vote for the Bill, and if so, why? If he votes in favour of it, he will be opening the floodgates to the disadvantage of the ratepayers whom he represents. The same applies to every Labour Member who votes for the Bill.
  It is important that the people in those hon. Members' constituencies should know that that is Labour party policy red in tooth and claw. It is red politics of the worst sort. It is interesting to note that only a few hon. Members are present in the Chamber, and that those who advocate the Bill come from a certain section of the Labour party. But I had better return to the Bill, otherwise, Mr. Deputy Speaker, you may speak to me yet again.
  The position in Liverpool and Lambeth, upon which most of those matters arise, has been interestingly spelt out by The Guardian. It stated:
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  "Labour councillors in Liverpool and Lambeth, who face possible bankruptcy"—
  against the background of wilful misconduct, warnings, protracted negotiations, and lawyers' advice—
  "under surcharge orders made by district auditors yesterday, are to be supported in their legal appeals by"—
  surprise, surprise—
  "funds from the Labour Party."
  The Bill, far from protecting the ratepayers of Liverpool, will protect Labour party funds. But that is only half the story. The article continues:
  "Mr. David Blunkett, chairman of the party's local government committee, pledged that any penalty imposed on the 81 councillors named yesterday would be remitted by a future Labour government."
  That is nothing more than a short cut to the impossible day of Labour's return to government. I do not believe that that will be achieved, but it hopes to do so.
  Local union officials at Lambeth have already raised about £30,000, and levies and collections are expected to go ahead at Liverpool and Lambeth. I am sorry that some Opposition Members are no longer here to listen to my points, because I am demonstrating that the Bill has far less to do with local government, its proper running and functions and much more to do with the Labour party's desire to ensure that it will not have to produce money to bail out the wilful misconduct of its members.
  Dr. Ian Twinn: Is my hon. Friend aware that the Association of Metropolitan Authorities has written a round-robin letter, with the support of Lord Graham of Edmonton, asking Labour party supporters to support the court case? I wonder whether this squalid Bill is a result of the failure of that appeal, because members of the Labour party are not prepared to put their hands in their pockets to support their colleagues.
  Mr. Cash: Yes, indeed. I hope the hon. Member for Norwood (Mr. Fraser) will take into account in his summing up that some Labour authorities propose to do swaps of money to bail out other local authorities. Such action would be ultra vires. The cancer that is spreading throughout Labour-controlled local authorities needs careful investigation. I hope that my hon. Friend the Minister will consider that point when she has the opportunity to read through my relatively short speech. In view of the importance of the matter, it requires to be carefully read.
  I have probably stated the case in full, Mr. Deputy Speaker. I am coming to a conclusion in deference to the hon. Member for Garston.
  The real question is about the threshold of local authority power and the extent to which that power is reasonably exercised within the parameters of the Local Government Act 1985. Councillors have their power and their duties. Sometimes local authorities say "We have this power and we must use it because Parliament has made us do so." However, even Sir Humphrey would understand that there is a point at which that is proper and right. Parliament has enacted the Local Government Finance Act 1982 to deal with the question of whether reasonable functions, powers and duties of a local authority have been exercised properly. The district auditor's power is an important back up to that provision.
  I was amazed when the hon. Member for West Derby said that electors, not the courts, should decide what is within the powers of a local authority. I hope that I heard the hon. Member correctly, and if I did not, I offer him

  1239
  an unreserved apology. However, I believe that Hansard will show that he said that the electors should decide what is within the powers of a local authority. If that is to be the case, Labour Members are inviting us towards anarchy. That must be so because we have a unitary system of Government. Parliament gives powers to local authorities on the understanding that they will be used reasonably and that the discretion given to local councillors is exercised with appropriate judgment. Only in cases of the most wilful misconduct would the sanctions, which the Bill proposes to repeal, be invoked.
  The real root of the problem — I ask the hon. Member for Norwood to consider this seriously and to tell us whether he shares the view—is whether the statement made by the hon. Member for West Derby is true. If it is, we must say goodbye to the Labour party and goodbye to democracy. It is appalling that an hon. Member should seriously suggest that. The Opposition seem to have no idea about democracy. An example of that was shown in the Felixstowe Dock and Railway Bill and the procedural matters which arose on it, which we discussed the other day.
  The Audit Commission has produced a pamphlet which the hon. Member for Garston and his colleagues should read. It is called, "Auditing Local Government. A guide to the work of the Audit Commission". It states:
  "The purpose of this booklet is to give a general account of the work of the Audit Commission."
  It contains much wise advice. It will tell Opposition Members why their Bill is so much junk. It will tell hon. Members why they have spoken such a farrago of nonsense. I am more worried about the hon. Member for Norwood, who is in great difficulty. He is under pressure from Left-wing Labour Members, but he should know that in other instances where the powers of surcharge are being applied, matters are being investigated by Labour local authorities, too. In cases of wilful misconduct, will the hon. Gentleman repudiate the provisions of the Bill as they apply to councils controlled by his party?
  At the end of this speech, I say that the Bill is about the proper working of local democracy.
  1.18 pm
  Mr. John Fraser: I have two comments to make on the speech of the hon. Member for Stafford (Mr. Cash). First, it was a disgraceful abuse of the privileges of Back-Bench Members. It was a disgraceful display of bad manners to take an hour of the House's time when so many hon. Members wish to speak in an important debate. Secondly, to respond directly to the question which he posed to me, I shall support the Bill. I do not say that when it passes into law there will not be some changes in the way in which it is phrased, but I support it because it fits Labour party policy.
  So that we can be exact about it, I shall tell the House what Labour party policy is on such matters. It is not a mere reaction to the events in Lambeth and Liverpool, although it is all the more welcome as a result of those cases. Our policy was set out in Labour's programme in 1982 and was approved by the Labour party conference:
  "Labour will act to remove the threat of personal surcharge and bankruptcy which now hangs over councillors as a possible penalty for the exercise of democratic decisions which have always been thought to be within the province of local authorities. As a matter of urgency, the next Labour government will introduce new legislation which defines as clearly as possible the degree of discretion left to local government in all areas where this is currently open to doubt."
  1240
  The 1982 policy statement went on to say:
  "except for acts of wilful financial negligence or corruption."
  This is extremely important and I want the hon. Member for Stafford to understand what was said.
  Mr. Cash rose—
  Mr. Fraser: The hon. Gentleman took up an hour of the time of the House, and I do not intend to give way to him.
  In 1984 the Labour party conference reaffirmed a statement on surcharge and the matter was again reaffirmed at the party conference in 1985, when it was said:
  "We will repeal the Rates Act and other repressive legislation and act immediately to remove personal surcharge and disqualification in line with Labour's Programme 1982"—
  which I have quoted.
  "We will legislate to restrict the powers of District Auditors to their traditional role of routing out fraud and corruption. We aim"—
  this is at the centre of our policy on these matters—
  "for the same system of financial probity that applies to Ministers of the Crown and directors of public companies."
  We claim the same responsibilities as Ministers. Ministers say that they are men and women of integrity and that they are not irresponsible or spendthrift. They, like the directors of public companies, claim the highest standards of probity. We ask and insist that councillors be subject to the same standards of accountability and the same degree of probity as the Ministers who sit on the Treasury Bench and the directors of public companies who sit on the Benches behind them.
  Mr. Parry: My hon. Friend is replying to questions raised by the hon. Member for Stafford (Mr. Cash), who has now left the Chamber.
  Mr. Fraser: I said that the hon. Member for Stafford was guilty of a disgraceful display of bad manners, and that makes the matter even worse.
  We are proposing that there should be the same standards of probity as for the highest in the land.
  Mr. Hayward rose—
  Mr. Fraser: I shall not waste the time of the House by giving way.
  Let us deal with the people whose duties should be copied and duplicated by local councillors. First, there is the Lord Chancellor. We say that the duties of local councillors should be the same as the duties of one of the highest judicial figures in the land, the Lord Chancellor.
  Mr. Hayward: On a point of order, Mr. Speaker. The absence of my hon. Friend the Member for Stafford (Mr. Cash) has been mentioned—
  Mr. Deputy Speaker: Order. That is not a matter for me.
  Mr. Fraser: W. S. Gilbert said of the Lord Chancellor:
  "When you're lying awake with a dismal headache, and repose is taboo'd by anxiety,
  I conceive you may use any language you choose to indulge in, without impropriety."
  I am sure that the Lord Chancellor is indulging in some language without impropriety. After all, the Lord Chancellor—W. S. Gilbert would have loved this—is about to be taken to court by no less than the Bar for an abuse of his powers.
  When Lambeth and Liverpool councillors are taken to court for an alleged abuse of their powers, they have to pay

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  their own costs. I declare an interest, because I am one of the trustees of the fighting fund. When the Lord Chancellor is taken to court by the Bar, he will not be paying his own costs. Even if the case goes against him, he will not be expected to foot the bill for damages.
  The Lord Chancellor, let me remind the House, earns £71,500 per year, although it is true that the present Lord Chancellor does not draw that. Local authority councillors in Lambeth, Liverpool and elsewhere get virtually nothing. We do not intend to diminish their responsibilities simply because they have a lower income than the Lord Chancellor; we intend to put them exactly on the same footing. We intend to put them on exactly the same footing as Cabinet Ministers such as the Secretary of State for the Environment. If one looks at recent cases, one sees that he has become a recidivist in the number of cases for which he has been taken to court.
  We intend to put councillors on the same basis as the Secretary of State for Transport, who sought to filch £50 million from the London ratepayers. He was described by the judge as acting unlawfully, irrationally and procedurally improperly. He was not asked to pay the costs of the case that he lost. He earns £45,000 a year, and we intend to put local authority councillors on the same basis of responsibility as Cabinet Ministers or a man such as Mr. Giordano, who is the chairman of the British Oxygen Co. and earns £883,100 per annum. I am not aware that he pays the costs when challenged in relation to his responsibility to the company. My right hon. Friend the Member for Chesterfield (Mr. Benn) made this point as well. When Laker was taken to court, he did not have to pay damages or costs, yet the Bill's opponents propose that local authority councillors should be under a much more severe restriction and face greater liability than the chairmen of public companies.
  Let me state our policy clearly. Councillors should be under the same obligations as Ministers and directors of public companies. Of course there must be remedies to deal with fraud, corruption and wilful financial negligence, but it is clear to us that councillors should not be subject to crushing and oppressive regimes which apply to no Minister and no director of a public company.
  The philosophical justification for the policy is long established and well precedented. It cuts across the parties. The Bill will not give carte blanche to councillors for acts of wilful financial negligence. The Bill does not rule out declarations of illegality or injunctions. It is founded on the well-established proposition that councillors acting in the belief that they are operating within their powers and that their decision is in the interest of their citizens should not be driven to bankruptcy, disqualification or penury.
  We support the Aristotlian principle—I was going to mention Aristotle and shorten my speech a little—of independent audit of the accounts of institutions, such as local authorities. The power to remit surcharge where it is fair and equitable and not to charge it has long existed in our laws. It has long been accepted that the surcharge could be removed if it was not fair and equitable to charge it.
  We have come to the conclusion that investing in a Minister or a court discretion to remit surcharge, or otherwise, is the wrong way to approach these matters and
  1242
  that the surcharge should be removed entirely except in those cases that I have mentioned. There are plenty of precedents for this.
  Mr. Simon Hughes: This is an important point, and I want the House to be clear about it. Is it Labour party policy that if a person knowingly makes a decision as a councillor that will result in a deficit under the Rates Act 1985 or similar legislation, that piece of financial decision making, which imposes that extra cost on the ratepayers —it cannot come from anywhere else—would be wilful financial negligence? If so, would not such a councillor be able to be disqualified or surcharged, as was the case before?
  Mr. Fraser: In areas where decisions have reasonably been taken by councillors, that is not wilful financial negligence. It is a perfectly proper exercise by councillors according to their lights. The Labour party is not unanimous about how councillors behave. Decisions vary from one councillor to another. No one doubts that the councillors who took certain decisions did so sincerely and according to their lights. In those circumstances, they should not be surcharged. What is more, there should be a system whereby those decisions can be challenged by declarations in the courts. The Bill permits the possibility of a declaration about the rightness or wrongness of those decisions, without the barbaric consequences of the surcharge. That is the distinction.
  There is a long-established principle that one can remit surcharge and that in certain circumstances surcharge should not exist. It is curious that the Poplar councillors were relieved from their obligations by the then Minister of Health, Neville Chamberlain. He sought to remove the surcharge from the councillors of Poplar and of two other local authorities. Someone took Neville Chamberlain to court to obtain a declaration that his remission of the surcharges on the Poplar councillors was illegal. As a result, he had to introduce a new Bill. I shall remind the House of some of the words which he used in so doing. He said:
  "this weapon of disallowance and surcharge, although it may work well in the majority of cases, yet when it comes to a question of deliberate policy, such as has been pursued in these particular boroughs, breaks down when it is most needed."
  I wish to emphasise the following words:
  "it brings the law into contempt and, therefore, it seemed to me it was time we abandoned the plan which was so ineffective. —[Official Report, 15 June 1927; Vol. 207, c. 1030.]
  I am not speaking in favour of Neville Chamberlain, for he put a sting in the tail and introduced disqualification. He argued that no other penalty was available to councillors who had no money. He was addressing himself to whether the surcharge could be used as a political attack on scores of councillors in Poplar and other boroughs in London at the time. Councillors had acted according to their conscience and conviction without a trace of dishonesty and with the support of their electorates. He knew then, as we know now, that the Government should not proceed with mass trials of councillors who had acted according to their conscience.
  Tory policy, which creates mass martyrdom as a consequence of monetary policy, is wrong and we reject it. Exactly the same problem faced the House in 1974 when councillors in 36 councils faced the possibility of surcharge and disqualification as a result of the Housing Finance Act 1972. That measure compelled councillors to vote for something which was contrary to their conscience

  1243
  and their political promises to their electorate. A law which compels individuals to vote against their conscience and their promises is a bad one.
  Mr. Cash rose—
  Mr. Fraser: It was possible under the 1972 Act, and it would be possible under the Rates Act 1984, for the Government to accept the responsibility to increase rates or to peg rates. Instead, the Government take the coward's way out. They are not prepared to face that responsibility, and so they enact a measure which compels individuals, against their policies and conscience, to peg rates or to increase them. I regard that as wrong.
  The House will recall that Tony Crosland addressed himself to the issue in 1974. He said:
  "Councillors would become disqualified from civic office. Whole councils would be decimated; and some hundreds of byelections would be fought in an atmosphere of unremitting bitterness—a bitterness which would endure for years ahead. Secondly, we should see the humiliating spectacle of the district auditor trying to collect the money …
  Many of these councillors stand to be made bankrupt, to have their life savings taken away and their earnings attached, and to lose their possessions, even their homes. As I said, most of them are not militant extremists. They are respectable men and women who acted on principle—through mistaken notions of right and justice. Many of them have given a lifetime of service to local government, often at considerable personal cost and I cannot believe that Conservative Members would really want to collect the full pound of flesh from these people."—[Official Report, 24 March 1974; Vol. 889, c. 40.]
  Tony Crosland knew, and the House agreed, that collective punishment of that sort could not be tolerated and would achieve nothing. Whenever the House has come up against this issue— in 1927, 1974 and even now — it has recognised that it cannot inflict mass bankruptcies, mass disqualifications and mass collective punishment to push through Government policy which is repellant to those who have been elected and who are accountable to those who placed them in office and not to the Government Front Bench.
  There is always the possibility of remission, and remission took place in 1974. The powers to remit were assumed by Neville Chamberlain in 1927. We say that that leaves far too wide a discretion.
  The political power of remission was taken away in 1982. Before that, the Minister could remit. That power has now been vested in the courts. It is wrong that it should rest in the hands of judges. These are political decisions which should not rest with the Bench. Indeed, they should not necessarily rest with the Government. We must move on from the doctrine of remission and abolish surcharge and disqualification.
  It is not Labour party policy that there should not be financial penalties in cases of corruption and fraud. We say simply that we should not treat people with political vengeance in order to achieve Government policy, yet that is what has happened.
  I shall direct my remarks to Lambeth because I am more familiar with the position there than with the position in Liverpool. However, the cases are not dissimilar. The councillors have been surcharged on a rather narrow point —because the Crown did not pay its contribution in lieu of rates on 1 April last year, and because the DHSS did not provide the money that it would normally provide for rate rebates.
  I cannot help thinking that the Crown was put up to that. It was perfectly possible for the Crown to have made its
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  contribution in lieu of rates based on what it thought to be a reasonable estimate of the rate to be charged. After all, there was a rate-cap limit, so the Crown could easily have calculated the amount that it should pay to Lambeth. I think that the same applied to Liverpool. I know that the Duchy of Cornwall is involved in Lambeth, and I think that it was asked not to pay a contribution in lieu of rates so that the district auditor could be brought in.
  The Government actually behaved responsibly and continued to pay rate support grant. Indeed, Lambeth made quite a large profit as a result of not setting a rate. I am not arguing the merits of whether the rate should or should not have been set. I say only that we made quite a bit of money out of the Department of the Environment.
  The DHSS refused to continue its payment for rate rebate, and I cannot help thinking that that was an act of political vengeance, with the aim of bringing in the district auditor and putting our councillors into mass trials in the High Court.
  The use of surcharge as a political act is quite wrong. This legislation must be passed quickly. After all, when the Secretary of State for Transport got it wrong and was found to have filched £50 million from the ratepayers of London—[Interruption.] The right hon. Gentleman did not have any problems. He brought a tres grande vitesse Bill before the House at 3.30 pm and it was law by the end of the day. I hope that this Bill will be passed with the same rapidity as every other indemnity Act brought forward by Conservative Ministers during the past few years.
  I shall give a final illustration of why it is wrong that the law should rest upon varying uncertainties about whether councillors have acted correctly. In April 1985 the Department of the Environment decreed that Lambeth's expenditure limit should be £116 million. The failure to set a rate was a result of that limit. Eventually, a rate was settled in July. In December, as a result of proceedings brought by Lambeth borough council against the Department of the Environment, the Department settled just before the surcharge case began in the High Court.
  The Department of the Environment admitted that its decision in April 1985 was wrong and allowed a redetermination of the expenditure level in Lambeth by increasing it from £116 million to £124 million so that the very basis of the dispute about rate capping was resolved in favour of Lambeth borough council. It is upon that degree of uncertainty that councillors in Lambeth have been surcharged. We believe that that basis for surcharge is wrong, and that is why we believe that the Bill is right.
  As I drove to Parliament this morning, I went past rows of houses which are badly in need of renovation, council estates with scaffold around them where work is not proceeding quickly enough, but where we have appalling housing conditions, and I went past the offices of the Department of Employment, which is the only growth industry in my borough, where people were collecting an queues outside for their dole. I looked at that and thought of what I had to defend in the House today, and I have no hesitation in supporting the Bill.
  1.51 pm
  Mr. Simon Hughes: I am grateful for the fact that the Bill has been introduced and that we have had an opportunity to debate what is clearly an important issue. We have long realised in local government that the law has been totally muddled,

  1245
  inadequate and illogical. It is important that we see the way forward and try to get the country and the people who serve local government out of the hole which a series of mixed decisions has put them in.
  The questions raised by the Bill are clear. Should there be controls by law on councils? If so, are the controls that exist, particularly surcharge and disqualification, the right ones? If not, what are the right ones? Should we abolish surcharge and disqualification? If we abolish those two things, does the rest of the law which is currently in place act as a sufficient safeguard for the finances in local government and the ratepayer? If not, do we have to do something to the other safeguards as well?
  There is a much more immediate matter. We are currently awaiting a decision on the case brought in respect of the Lambeth councillors and there will soon be a decision on the case brought by the Liverpool councillors. They went to court, as they are perfectly entitled to do, to challenge the amount that the auditor has assessed they have to pay. Should we, in midstream, change the rules which clearly apply to them now and which they knew would apply when they made the decision? Therefore, there is the general issue and the specific issue.
  Mr. Heffer rose—
  Mr. Hughes: I shall give way when I complete this first section.
  The hon. Member for Liverpool, West Derby (Mr. Wareing) said that the only sanction on councillors should be at their next election. I do not believe that that is an adequate sanction. I do not believe that the only sanction ever on local government — I shall come to its application for others shortly—can be the ballot box. There is a long time between one election and the next, in which much money can be spent and mis-spent and many things, short of corruption, can go on. I think that the hon. Member for West Derby should think again about whether he meant that, because if he did mean it I think that he should realise that that is a crazy limitation on what is needed in local government.
  Mr. Heffer: I shall ask one simple question, which needs a simple answer. Why was the hon. Gentleman not here when my hon. Friend the Member for Liverpool, Garston (Mr. Loyden) made his speech explaining the reasons for the Bill?
  Mr. Hughes: That is a perfectly proper question. I regret not being here. I had intended to be here but I had a telephone call at home as I was about to leave from a colleague and a constituent of mine, and I had to deal with the matters arising from that. As I said, I regret not being here. I compliment the hon. Member for Liverpool, Garston (Mr. Loyden) on introducing the Bill. I think it is important that the Bill should be introduced. I apologise to the hon. Gentleman and hope that the hon. Member for Lverpool, Walton (Mr. Heffer) will accept my explanation.
  The debate arises because of the tension that exists between central and local government, and because local government derives all its powers from this place. For as long as that tension continues, there will inevitably be unfairness when the Government can dictate to local
  1246
  representatives, who are properly trying to defend their local interests, interests that are not adequately understood by the centre.
  Mr. Allan Roberts: Will the hon. Gentleman make it clear whether he and the Liberal party support the Bill and, if so, why the Liberals in Liverpool, including the hon. Member for Liverpool, Mossley Hill (Mr. Alton), have asked for the law that we are trying to repeal to be used more speedily and effectively against Liverpool councillors?
  Mr. Hughes: I plan to deal with that point because it is a perfectly proper one.
  The example of the Poplar councillors has been cited. In the 1930s Bermondsey councillors found themselves in conflict with the Government, who refused to give what was clearly needed by a poor community that was not benefiting from Government economic policy. Those conflicts will continue. We need, therefore, to ensure that local councillors have powers and responsibilities that are as safe as possible from Government interference. We must be clear that we will not permit corruption—no one would endorse or condone that—and that we will not permit the abuse of the trust and powers enjoyed by councillors.
  It would be dangerous to say that the Executive or local government can change the rules in their favour and exempt themselves from independent scrutiny. That is the danger of saying that elections are the only safeguard. I share the view that we need an independent scrutiny of local government, the Government, Ministers and the private sector. The right hon. Member for Chesterfield (Mr. Benn) made a valid point. If people's finances are abused, whether by local government, central Government or the private sector, they should be equally protected. It is wrong that those who invest in a limited company, which can be set up overnight, should find that they have no adequate remedy when the company goes into liquidation. The people who set up the company may not be available or liable under the law for the consequences of their actions and that is wrong. Company law has protected such people far too often.
  It is also wrong that Ministers cannot effectively be taken to court when they are wrong. Examples have been cited. I was involved in the London Regional Transport Bill when the Secretary of State for Transport clearly tried to impose a greater levy on the GLC than he should have done. The court said strongly that that was wrong. He received a different personal penalty — nothing other than a telling-off—from that received by people in local government who do the same thing. There should be an independent adjudication process that applies across the board. The abuse of powers by Secretaries of State should also be dealt with.
  We should consider the remedies. The law is uncertain. It is hopeless for councillors to try to understand what they are meant to be doing. They seek advice about what is reasonable. Council officers often give equivocal answers. The problem is that local government and administrative law has been arbitrarily and inadequately developed. In my borough last year, my colleagues Councillors Colley, Pemberton and Tindall had to decide — in a council where the Labour majority group was split and when Liberals were effectively holding the balance of power — how they should choose between voting to set a

  1247
  deficit budget or having no budget when the advice of the officers was often ambiguous and difficult to understand. Those problems will not be resolved unless we help councillors to do their job properly.
  Liverpool and Lambeth are the tip of the iceberg. Below them are the adjudications of the district auditor in places such as Southwark, Greenwich, Islington and Sheffield to the effect that an amount of money has been lost to local government by their councillors' delay in setting a rate. There is a certified cost of delay in Lambeth of £126,000. Should those who are responsible for the delay take the blame?
  It is important to put on record that the 1985 anti-rate capping campaign was a confidence trick. At the beginning of the campaign those councillors who were involved knew that ultimately they would have to set a rate. When they pretended that they were not going to set a rate, they knew that eventually they would have to give in. They were therefore playing with people's money. There were endless newspaper editorials which expressed the view that this was an abuse of their position and power.
  It is much more difficult to determine whether their action was unlawful. They sought advice. Ambiguous and different advice was given. There was no duty then under the Rates Act 1984 to set a rate by 1 April. Councillors were working in a legal minefield. Money as a result has been lost to local government. It has been lost by those who were elected to act on behalf of ratepayers. Councillors did not spend their own money, so they have not lost their own money. The public do not like that money being lost and wasted on their behalf.
  Mr. Allan Roberts: Will the hon. Gentleman give way?
  Mr. Hughes: No.
  Local services cannot afford that loss, for the reasons that were given by the hon. Member for Norwood (Mr. Fraser), that there is a fantastic amount of work to be done by local government that cannot be done because of a lack of finance.
  I shall set out in summary what I believe to be the defects in the situation, the requirements, and the position of my party. The defects are that there is no clear position for members and officers of local authorities. There is also no proper balance or equity between central and local government. There is uncertainty about the law and the position of individuals under the law. The law allows potential exploitation by elected members at the expense of the ratepayers. It permits people to abuse the system. The remedy is very slow. If there were an abuse of the fiduciary duty of Southwark councillors because of their delay in setting a rate in April 1985, it is not much use ratepayers being left to make their judgment in the London borough elections of 1986 if there has not yet been an adjudication as to whether or not that loss was validly incurred. A process that takes a year and a half to produce an answer is no adequate safeguard for ratepayers.
  Reforms are therefore needed. I share the view of the hon. Member for Norwood that if the disqualification and surcharge sanctions remain on the statute book they perpetuate an anomalous position that is difficult for anybody to defend. Therefore, sanctions such as these ought to disappear. However, some speedy sanctions are needed. There ought to be an independent court of auditors, similar to that of the European Community,
  1248
  which can act immediately and effectively. It would mean that a week after a rate should have been set ratepayers who believed that money was being wasted or lost could get an order that would require the local authority to act. It is no use if sanctions can be applied only a year or two years later. It is certainly no use if sanctions eventually penalise people who are not serving on the council by the time they are imposed.
  The Minister knows that her Government have set up the Widdicombe inquiry to look into these questions. It has a great responsibility to make sure that it proposes a package of reforms that deal with all the defects. Surcharge and disqualification should disappear, but if they do so without putting in any more controls, that allows for exploitation of the system. My party cannot suddenly agree to take away the present controls, leaving nothing there unless a replacement package is introduced so that the councillors are still accountable.
  The Liberal party will vote against a Bill that seeks only to take away disqualification and surcharge, because we need a method to make sure that ratepayers' funds are not misused. The present legislation is wrong, but we do not want a piecemeal approach to its reform. We need a proper, complete approach. If the hon. Member for Garston or the Minister could say that they will undertake to bring in a package solution that strengthens remedies while including the removal of disqualification and surcharge, we would accept that.
  In government, we would legislate to remove disqualification and surcharge and at the same time introduce a decent alternative package of effective and immediate controls. Their imposition would be in the hands of the electors and ratepayers, and would allow councillors the certainty that the present law does not.
  1.56 pm
  The Parliamentary Under-Secretary of State for the Environment (Mrs. Angela Rumbold): We have had an interesting and sincere debate on the Bill. If nothing else, we have at least, in the contribution from the hon. Member for Southwark and Bermondsey (Mr. Hughes), discovered that although he will vote against the Bill, he is in favour of it in principle and therefore if there were another sort of Bill, he would vote for that. That puts into context the way that the Liberal party thinks.
  For the benefit of the House, I shall try to describe the way in which I see what the Bill would do. It seeks to remove and nullify two inter-related Acts. Surcharge no longer exists — the term disappeared with the Local Government Act 1972, as many hon. Members know. The hon. Member for Liverpool, Garston (Mr. Loyden) is referring to the recovery of unlawful expenditure or loss due to wilful misconduct on the part of councillors. He cannot be in any doubt about the term "wilful misconduct" since the excellent speech of my hon. Friend the Member for Stafford (Mr. Cash) who went into great detail about the way in which such matters could or might be interpreted in the courts.
  The hon. Member for Garston seeks to remove from section 19 of the Local Government Finance Act 1982 the action that can be taken by the auditor and consequently the courts when the money has been spent unlawfully by the council, its officers or its elected members. The auditor applies to the court, and the court can order repayment of all or part of the money. If the sum exceeds £2,000, the court can order any councillor concerned to be disqualified

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  for a period at the court's discretion. The Bill would remove from section 19 all penalties for acting in breach of the law. That hardly seems right.
  Mr. Harry Greenway: Was it not total double speak by the hon. Member for Norwood (Mr. Fraser) to say that the Labour party policy was to oppose wilful misconduct by councillors at the time to which my hon. Friend has referred, but then to say that it supports the Bill strongly when it removes all penalties for such wilful misconduct?
  Mrs. Rumbold: I am grateful to my hon. Friend. He has pinpointed the problem with the Bill. Opposition Members rightly disapprove of wilful misconduct—one would hope that—but they have failed to understand that the Bill will not help them in their search to prevent councils from committing wilful misconduct.
  I was deeply saddened to hear the hon. Member for Garston, the right hon. Member for Chesterfield (Mr. Benn) and the hon. Member for Liverpool, West Derby (Mr. Wareing) talk in the most regrettable terms about auditors and, in some senses, make unfounded allegations about their independence and integrity. The auditor's powers are conferred on him by Parliament. As laid down in the code of local government audit practice, the auditor discharges his professional responsibilites entirely independently. The independence of local government auditors is long established. The hon. Member for Norwood (Mr. Fraser) talked about the Clay Cross case. I should like to read from the Denning summing-up about those councillors. It says:
  "Here they are, the 11 councillors of Clay Cross. Each of them deliberately broke the solemn promise which he gave when he accepted office as councillor. Each of them have flagrantly defied the law. Each of them is determined to continue to defy it, yet they come to the court and complain that the Secretary of State has acted unlawfully. If he had done so, we would not hesitate to say so. We will not tolerate any abuse of power by the Executive arm of government, but here there is none. These 11 councillors, by their conduct, have presented a grave problem to all concerned in the good government of this country. The Secretary of State is the one person who can take action to see that the law is obeyed. He is the one who must decide which of several courses open is the best one to take."
  The same Secretary of State—Anthony Crosland—said in 1975, when he was Secretary of State for the Environment:
  "I have no power to intervene with the work of the District Auditor. In no circumstances would I dream of doing so."
  The auditor's independence was further reinforced with the establishment of the Audit Commission in 1982. The special status of district auditors has always been recognised by Ministers. The suggestions of political bias in 1927 were rebutted by Neville Chamberlain who was then Minister of Health. He said:
  "They are not my auditors. They are entirely independent of me. I have never attempted to give a District Auditor instructions as to what he should do. I have never sought to influence a District Auditor in carrying out his duties. It would not have been any use if I had."
  That stance has never been seriously challenged until today when, sadly, hon. Members have talked of district auditors and others who are appointed as independent people as having some flavour of political intent. That is a disgrace, and I hope that no hon. Member is prepared to support such a view.
  Nobody is saying that mistakes cannot be made in regard to the advice that councillors or council officers
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  may give. The hon. Member for Southwark and Bermondsey mentioned that. It is possible for councillors or council officers innocently or unintentionally to incur unlawful expenditure for the best of motives. It is not unknown for there to be a difference of view between lawyers about what is lawful expenditure. Section 19 of the 1982 Act allows for that position, and repeats earlier safeguards to protect members and officials.
  Mr. Benn: There are two questions about the personal qualities of auditors. Can the Minister, from her wide experience, think of any other example in the British legal system where somebody can be punished and fined without a hearing, and may free themselves only by appeal? There is no judicial hearing for a surcharge by an auditor. Could the Minister from her great knowledge give us a parallel for such a procedure, that is, punishment without trial subject only to reprieve after appeal?
  Mrs. Rumbold: If the right hon. Gentleman is prepared to listen for a while, he will discover that I shall come to that matter. I have an answer for him.
  Under the 1982 Act the court is barred from imposing the sanctions of recovering moneys or disqualification, if the person concerned acted reasonably, or believed that the expenditure was lawful. Under the proposals of the hon. Member for Garston, which his colleagues, including those on the Front Bench, accept, the courts could only declare the expenditure unlawful. That would be the end of the story, making the whole exercise meaningless.
  Similarly, the Bill seeks to abolish section 20 of the Local Government Finance Act 1982. Section 20 deals with fraud and misconduct, and, rightly, no hon. Member would wish to be associated with people who commit fraud or are guilty of misconduct. Under the present law the auditor is required to issue a certificate for the amount involved. He, or the body concerned, may seek to recover money fraudulently stolen or lost to the public purse. In the case of loss due to wilful misconduct, disqualification for councillors follows automatically where the sum exceeds £2,000.
  We must be clear on what we are discussing. We are talking not merely about a simple mistake, a genuine error, or a misunderstanding, but about deliberate theft or a flagrant breach of a duty by people in a position of trust. It may be reassuring to know that in recent years action under section 20 has rarely had to be employed. That is a great tribute to the thousands of men and women who offer their services as local councillors. When section 20 has been used, most of the cases were cases of fraud. Fraud and corruption are cankers of public life to be rigorously guarded against, and, when encountered, ruthlessly eradicated. By stripping the auditor of that role and his powers, the Bill would, at the same time, destroy a valuable deterrent as well as an effective remedy.
  Labour Members have also talked about whether Members of Parliament, who are elected to office, and Ministers should be subjected to the same sort of rigours of surcharge as local councillors. Members of Parliament are elected to make and amend laws, as the right hon. Member for Chesterfield said. Ministers are accountable to the House, but councillors are not. Their position is different. Local authorities are statutory organisations and have only the powers which Parliament bestows on them. Local councillors cannot change the law. Only Parliament can do that.
  Mr. Wareing: What about the chairmen of health authorities?
  Mrs. Rumbold: Chairmen of health authorities cannot change the law either. The courts exist to provide a final ruling, where the law is unclear. Councillors are vulnerable to repayment and disqualification only when they knowingly spend money contrary to the law. That is the essence of the point that I wish to convey to the Opposition. Those who disagree with me are entitled to do so. It is an important point that councillors are vulnerable to payment and disqualification only when they knowingly expend money contrary to the law.
  Mr. Wareing: The law is unclear.
  Mrs. Rumbold: It is not tremendously unclear. We have discussed Ministers' obligations and duties, which derive more directly from the will of Parliament. It is most difficult to conceive of a circumstance where Ministers wilfully embark on misconduct.
  Mr. Heffer: Can the hon. Lady explain where, in relation to Liverpool, money was spent wrongly? The whole point is that they did not spend the money.
  Mrs. Rumbold: Many of us have been councillors for years before we came to the House. We should remember that it was generally agreed that to make a rate was the right and proper thing to do by the ratepayers and the people who elected us to serve that local authority. By the delay in making a rate they were acting—
  Mr. Heffer: They made a rate.
  Mrs. Rumbold: Eventually they made a rate, but the means by which they delayed raises questions.
  It is not the Government's role to have a say in the court cases between Liverpool, Lambeth and the district auditors. I have stressed that the auditor is completely independent of Government. As I understand it, the councillors are appealing against the district auditor's decision to issue certificates of surcharge for the loss which he calculates as having been caused by their independent decision to delay in setting a rate. The courts will come to their conclusions; it is not a matter for the Government.
  Local authority members are in a unique position. They are elected to comply with the law, which is different from the position of area or district health authority chairmen. Parliament has not given local councillors powers to change the law. It is not unreasonable that an elected member who disregards the law and incurs large sums of unlawful expenditure and is responsible for losses to the authority because of his unreasonable behaviour should be held to account for his actions. Is that unreasonable? Is there an Opposition Member who would suggest that it was?
  Mr. Fraser: Come on!
  Mrs. Rumbold: The hon. Gentleman says come on, but he is not prepared to answer.
  No one asserts that the present system is perfect. However, the Bill would seriously infringe the rights of individuals within the local authorities. During the debate there has been much to hear and learn about the rights and abilities of local councillors to spend money. But we have heard little — perhaps Opposition Members could enlighten me on their views on the matter—about the rights of individuals who live in the local authority areas.
  1252
  The existence of the recovery and disqualification provisions, which are, as I have said firmly, the powers of last resort, offer protection to the citizen which he or she would not otherwise have. Local authorities are often seen as large, bureaucratic remote organisations which the individual feels powerless to challenge. Indeed, many people who live in local authority areas do not have the faintest idea of the responsibilities of those authorities. People used to ask me when I worked at the GLC what I would do about health matters, but the health authority had nothing to do with the GLC. I received many letters from people asking, "What will you do about our local hospital?" It shows that large, bureaucratic and remote organisations leave the individuals living under their control somewhat powerless.
  The auditor provides one of the few means of pursuing a genuine grievance against wrongdoing by those entrusted with civic management. The Bill would effectively destroy that avenue. Although in theory the citizen can turn to the courts for protection as an alternative, in reality few could contemplate such a move. The expense and the risks to the individual are daunting in the extreme, whereas the local authority has all the advantages—financial and organisational—at its disposal. Of course, all that is at the ratepayers' expense.
  The auditor is in the business of protecting the individual citizen. He can nip in the bud many of the ridiculous follies that could otherwise so easily end in expensive litigation and its consequences. He is well qualified to demonstrate to an authority the consequences of any ill-judged financial action that it may have in mind. In the first instance, we might expect him to warn the authority of what might happen, possibly by means of a letter. If the authority continues to steer a dangerous course, the next stage is often a report in the public interest. That is exactly what it says. A reasonable authority will take it seriously and put in hand measures to put things right. Only after exhausting all those possibilities would the auditor even contemplate invoking his powers under sections 19 and 20 of the Local Government Act 1982. Those powers are the last resort for the protection of the citizen; they are what the hon. Member for Garston and his colleagues wish to remove.
  The fact remains that local authorities cannot act ultra wires, and must act reasonably. They can act only within the law. They have a proper discretion within the powers that Parliament has given to them. The hon. Member for Southwark and Bermondsey was wrong to say that that was not clear. The discretion can be upset only if the authority takes into account irrelevant matters, fails to take account of relevant matters, or comes to a decision so unreasonable that no reasonable authority could have made it. We have a great deal of evidence of authorities that make unreasonable decisions. Indeed, sadly, in recent years authorities have not merely exceeded reasonableness, but have entered the area of the completely ridiculous.
  However, the onus of proof is on the auditor. In the case of wilful misconduct—that is where section 20 of the 1982 Act applies— before the auditor can proceed he must be satisfied that the councillors acted deliberately and knowingly. In practice, that will often amount to acting almost in deliberate defiance of their officers' recommendations. I am not sure whether the hon. Member for Southwark and Bermondsey was right to say that it is sometimes difficult for officers to give reasonable advice.

  1253
  We can see that the auditor does not and cannot lightly launch into such drastic measures. He does so only when all else fails, and in circumstances where the responsible citizen would have every reason to feel aggrieved and where, without the protection of the auditor, the citizen who exercises his democratic right to elect local councillors and Members of Parliament could all too often feel powerless and overwhelmed. It is interesting to note that those who claim to be concerned about the operation of democracy are not in the least bit concerned with protecting the rights of individual citizens.
  I listened with a great deal of interest to the hon. Member for Norwood when he told the House that the Opposition are prepared to support the Bill. I found that interesting in the light of the way in which the Bill would operate to remove protection from the individual citizen. I found it even more interesting to learn that if his party were ever in Government it would introduce a measure that would not be on all fours with the Bill. Indeed, I must tell the hon. Member for Garston that there might be some significant revisions to his Bill in order to put the Labour party straight.
  As the Bill stands, hon. Members and the wider public can be clear today that the Labour party is prepared to accept a Bill which deliberately removes recourse by any citizen—[HON. MEMBERS: "No."] Indeed, it does. It removes the protection of existing actions that can be carried out by the auditor regarding local council operations. That clear message should go out to the people outside the House.
  Mr. John Fraser: May I make it clear that if the Bill were passed unamended it would be open to the district auditor to obtain a declaration that an act was illegal? It would be open to any citizen or the district auditor to obtain an injunction to restrain that conduct and further penalties would follow. To say that the Bill removed all that protection is a travesty of the truth.
  Mrs. Rumbold: I would expect the hon. Gentleman—
  Mr. Bob Clay rose in his place and claimed to move, That the Question be now put.
  Question put, That the Question be now put:—
  The House divided: Ayes 50, Noes 0.

  Division No. 76]

  [2.22 pm

  AYES

  Ashley, Rt Hon Jack

  McKay, Allen (Penistone)

  Atkinson, N. (Tottenham)

  McWilliam, John

  Banks, Tony (Newham NW)

  Madden, Max

  Barron, Kevin

  Marek, Dr John

  Benn, Rt Hon Tony

  Maynard, Miss Joan

  Bidwell, Sydney

  Michie, William

  Brown, Ron (E'burgh, Leith)

  Nellist, David

  Buchan, Norman

  Parry, Robert

  Cohen, Harry

  Pavitt, Laurie

  Crowther, Stan

  Pike, Peter

  Cunningham, Dr John

  Richardson, Ms Jo

  Dixon, Donald

  Roberts, Allan (Bootle)

  Dobson, Frank

  Roberts, Ernest (Hackney N)

  Dubs, Alfred

  Sedgemore, Brian

  Fields, T. (L'pool Broad Gn)

  Shore, Rt Hon Peter

  Flannery, Martin

  Skinner, Dennis

  Foster, Derek

  Smith, C.(Isl'ton S & F'bury)

  Fraser, J. (Norwood)

  Soley, Clive

  Hamilton, W. W. (Fife Central)

  Spearing, Nigel

  Haynes, Frank

  Wareing, Robert

  Heffer, Eric S.

  Welsh, Michael

  Holland, Stuart (Vauxhall)

  Williams, Rt Hon A.

  Hughes, Dr Mark (Durham)

  Winnick, David

  Hughes, Simon (Southwark)

  Kaufman, Rt Hon Gerald

  Tellers for the Ayes:

  Leighton, Ronald

  Mr. Jeremy Corbyn and

  Loyden, Edward

  Mr. Bob Clay.

  McCartney, Hugh

  NOES

  Nil

  Tellers for the Noes:

  Mr. Christopher Chope and

  Mr. John Watts.

  Whereupon MR. DEPUTY SPEAKER declared that the Question was not decided in the affirmative, because it was not supported by the majority prescribed by Standing Order No. 32 (Majority for Closure).

  Private Members' Bills

    DRAINAGE RATES (DISABLED PERSONS) BILL
    Bill read a Second time.
    Bill committed to a Committee of the whole House. —[Sir Gerard Vaughan.]
    Committee on Friday 11 April.

    TOBACCO PRODUCTS (ADVERTISING) BILL
    Order for Second Reading read.
    Hon. Members: Object.
    Second Reading deferred till Friday 18 April.

    PENSIONERS' RIGHT TO HEAT, LIGHT AND COMMUNICATIONS BILL
    Order for Second Reading read.
    Hon. Members: Object.
    Second Reading deferred till Friday 25 April.
    Mr. Jeremy Corbyn: On a point of order, Mr. Deputy Speaker. Is it in order for objections to be made from a sedentary position?
    Mr. Deputy Speaker (Mr. Ernest Armstrong): Yes, that is quite in order.

    LEASEHOLD REFORM BILL
    Mr. Deputy Speaker: The Bill has not been printed, and I therefore cannot put the Question for Second Reading.

    STANDING CHARGES (ABOLITION) BILL
    Order for Second Reading read.
    Hon. Members: Object.
    Second Reading deferred till Friday 2 May.

    ABOLITION OF CROWN IMMUNITY BILL
    Order for Second Reading read.
    Hon. Members: Object.
    Second Reading deferred till Friday 2 May.

    CROWN IMMUNITY BILL
    Order read for resuming adjourned debate on Question —[7th February]—That the Bill be now read a Second time.
    Hon. Members: Object.
    Second Reading what day?
    No day named.
    Mr. Corbyn: On a point of order, Mr. Speaker. Can you advise the House of the names of the hon. Members who objected to the Second Reading of the Bill which I tried to introduce, namely, the Pensioners' Right to Heat, Light and Communications Bill? It is important that people in this country know who is objecting to some of these important measures—
    Mr. Deputy Speaker: Order. This matter is raised on a number of Fridays. It is not necessary for an hon. Member to stand in his place to object. The Chair must carry out the rules.
    Mr. Dennis Skinner: Further to that point of order, Mr. Deputy Speaker. There is a way in which to resolve the problem, and which would prevent your being placed in such an invidious position on successive Fridays, when Tory millionaires come to the House masquerading as Whips to stop pensioners obtaining their right to fuel.
    We should examine ways and means to deal with this matter through the appropriate Committee, so that anyone who objects to such a Bill must be named in Hansard. Will you consider requesting the Committee to deal with the matter?
    Mr. Deputy Speaker: It is up to any Member to approach the Committee, or for any member of the Committee to raise the matter.
    Mr. Laurie Pavitt: On a point of order, Mr. Deputy Speaker. Many of your predecessors have faced this problem on a Friday. On one occasion the Chair, in reply to an Opposition question, stated, as you have today, that the matter must be pursued through other channels. Do you have any knowledge of the matter having been raised through any other channels? If so, is there any way in which an hon. Member objecting to a private Member's Bill can be required to declare any interest?
    Mr. Deputy Speaker: I understand that the matter has been considered by the Committee. In the end, it is a matter for the House. The Chair is governed by the rules of the House. I have no doubt that the exchanges today will have been noted by those who wish to raise the matter again.

  Paper Industry
  2.39 pm
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Sainsbury.]
  Mr. Simon Hughes: On a point of order, Mr. Deputy Speaker. I rose before the Whip moved the Adjournment.
  Several inter-related matters are involved in the previous points of order. Can you tell us to which Committee we should turn to request consideration of matters which, quite properly, are not for you, but which the House clearly wishes to be considered through the appropriate procedure?
  Mr. Deputy Speaker: It is the Procedure Committee, which can then make representations to the House.
  Mr. Alistair Burt: I thank the House for giving me the opportunity to raise the question of the current state of the British paper industry. The connection between that industry and my constituency is well known. Bury has a long history in the paper trade, not only in manufacture but with the allied trades that manufacture and design the paper-making machinery, the felt-making trade that assists the rollers in the factories and the general engineering trades that have helped the paper industry for many generations.
  I now have only three mills in my constituency but there are more on my doorstep and I am pleased to note the presence of my hon. Friend the Member for Bury, South, (Mr. Sumberg) who I know will seek to catch your eye later Mr. Deputy Speaker. The mills in my constituency are spread throughout the area and demonstrate the wide spectrum of paper-making in this country. Olives paper mill in Tottington deals with printing and writing paper, James R. Cramptons and Sons in Bury deals with fibre papers, making, among other things, sausage skins and tea bags. Trinity Paper Mills is based in Ramsbottom and deals with corrugated paper and board, sack paper and other similar papers.
  It is an appropriate opportunity for me to pay tribute to those who work in the paper and allied trades in Bury who have been through difficult times, but management and work force alike have worked very hard to look forward to a better future. The current climate in the paper industry is rather different from that of 1982, the last time the industry was raised in an Adjournment debate by the then Member for Bury and Radcliffe, Mr. Frank White, who was well known for his good work on behalf of the industry. At that time the industry was in the depths of a crisis which, at its worst, over the period between 1974 and 1984, cost the country 50 mills out of 160 and nearly 30,000 employees out of a total of 70,000. In 1982 the finger was being firmly pointed at the Government and at high energy costs and their disastrous effect on competitiveness throughout the industry. The industry did not disguise the fact that there were other problems but there was no doubt that the energy crisis, in the first period between 1979 and 1982, made a great and lasting impression on the paper industry.
  In 1986 things are rather different. It is not my intention to moan on behalf of the paper industry. I seek to do two things. First, I wish to remind the House and the people at large of the achievements of the industry over the past few years. Secondly, I wish to point the way ahead, while
  1258
  asking the Government to take note of those factors which may impair the growth of the industry and over which they may exercise some control.
  The achievements of the paper industry over the past two years have been substantial. About £600 million has been invested over the past five years, not only in new machines but for upgrading the existing plant. The price of paper in real terms has fallen with consequent benefits to the consumers. Productivity has increased by nearly 40 per cent.; energy efficiency has improved by 30 per cent.; a new training scheme for process employees has been introduced and management and unions alike are to be congratulated on the new working practices that have been introduced.
  Exports as a proportion of the United Kingdom production have increased from 10 per cent. in 1979 to 15·5 per cent. in 1985 — a 50 per cent. increase. Demand and home production are now growing well in nearly all sectors. The Government have also played their part in that recovery. If we chided the Government for their part in the energy price increases in the early part of the decade it is only fair that we offer some words of comfort and thank the Government for some of their achievements since then. There have been certain changes in the common agricultual policy of the European Community to enable industry to obtain starch at world prices. There has been a removal of the national insurance surcharge and, at last, there has been a much needed stability in energy prices, albeit at a higher level than the industry would have hoped. There has been the energy efficiency demonstration projects, supported and financed by the Government, which have had a great benefit on the industry.
  I shall turn from the real and substantial achievements of the industry over the past few years and deal with some of the concerns and problems of the industry which I would like the Government to bear in mind. The first is a general issue affecting manufacturing industry —interest rates. Concern about the effect of high interest rates on investment is shared throughout manufacturing industry. The balance is always difficult to achieve but there is no doubt that high interest rates hamper growth and the industry and the Government have a vested interest in seeing interest rates fall as quickly as possible. I urge the Minister to take that matter seriously and I urge his colleagues to look at interest rates as quickly as possible.
  Secondly, I wish to deal with the exchange rates. The volatility of exchange rates in recent years has cost any importer or exporter dear. It is not the levels of the currency but the speed at which it fluctuates that has caused a great deal of harm. I can graphically illustrate that with a comment in a letter I have received from one of the mills within my constituency. I quote:
  "Just a year ago, the Franc stood at 11·16—a rate at which business could just about be conducted economically. By July, it had risen to 12·28 and this adverse change of 10 per cent. within five months gave no alternative but to withdraw from the French market almost entirely. With hindsight that was a mistake, because on Tuesday last, the rate had declined to 10·28. But who was to know that within seven months that adverse 10 per cent. would turn around into an 8 per cent. advantage? With this new comfort why not then simply re-enter the French market and enjoy it? Because the customer expects continuity and a guarantee that a supplier will remain in a market long-term. How can my constituent give such assurances in such a chaotic situation? Since the Dutchman can; and the German can; my constituent, the industry and the nation are severely disadvantaged."

  1259
  Exchange rates worry James R. Cromptons and Sons which exports nearly 50 per cent. of its production. I appreciate the difficulties that the Government face when they think about joining the European monetary system, but there is no doubt that the Government should think seriously about the benefits of stable exchange rates. I hope that my hon. and learned Friend will consider that matter seriously.
  The changes made to capital allowances in recent Budgets are a major worry to industry. The three mills in my constituency report a problem. They believe that the phasing out of those allowances can reduce our ability to match the performance of our overseas competitors. I believe that my hon. Friend the Member for Bury, South may also mention that point.
  There are two items of special interest to the paper industry. The first relates to the problem of Kraft liner. The EEC has fixed a minimum price for imported Kraft liner to stop dumping. However, that regulation is being widely breached, affecting not just the case material industry in this country and Europe, but, crucially, the EEC's anti-dumping enforcement credibility. The Department of Trade and Industry's anti-dumping unit has given great assistance to the industry, but the Government must continue to press Europe on that issue. If the European Commission is not perceived to be credible in dealing with dumping, the ramifications, not just for the paper industry but other manufacturing industry in this country, will be widespread and profound.
  The second problem relating to paper is that of starch. The EEC has a price for starch well above the market rate. That is connected with the common agricultural policy, because starch is a natural product: without starch some paper processes cannot go ahead. My constituents—and in particular the Olives paper mill — face world competition and are at a disadvantage because of the artificially high price of starch. The industry appreciates the efforts that the Government have made to press their European colleagues on that matter but it hopes that my hon. and learned Friend and his colleagues will do even more.
  The paper industry's energy problem has lasted for some time. Costs have now stabilised somewhat. The problem is not as serious as it was, although much damage has been done. It is hoped that such damage will not recur. Great credit should go to the paper industry, which has buckled down to the problem and done all it could to increase efficiency. Credit must also go the Department of Energy, which has had a high profile in encouraging efficiency, promoting schemes and providing material assistance.
  I must utter a word of caution. With oil prices coming down, with their consequent knock-on effects for manufacturing industry, it would be folly to penalise industry by seeking an increase in taxation to cover lost revenue. The Government should let manufacturing industry reap the rewards of lower costs and increased efficiency. The Department of Trade and Industry should strongly urge the Treasury not to adopt such a policy. It should not seek to penalise manufacturing industry and use lower oil prices to slap on an extra tax. Hard lessons have been learnt by the paper and other industries. It will be a shame if the industry is not allowed to compete properly now. Further assistance with energy costs, by way of help for the electricity high loaders, would be welcome.
  1260
  My last subject is foreign aid subsidy. The industry has learnt from the European Commission that instances of apparent infringement of articles 92 and 93 in the paper section continue to increase, as member states either grant aid without notification or apply for dispensation on rather flimsy grounds. Either the Government should press the Commission to enforce the regulations more thoroughly or they should be more liberal. The industry is squeezed all ways. It is accused of trying to play cricket when everybody else is playing a different game. For long enough the Department of Trade and Industry has had one arm behind its back in its dealings with those on the continent who try to assist their industries in an artificial and unfair way. It is time for the Department to be more robust.
  As for manufacturing industry in general, the demonstration projects of the Department of Energy have enjoyed great success throughout industry. Is it too much to hope that the DTI will seize on that success and produce a new initiative for manufacturing industry?
  I hope that my hon. and learned Friend the Parliamentary Under-Secretary of State for Trade and Industry will allow me to put to him in writing some ideas on a scheme to promote improvements in manufacturing efficiency and quality. A charge that sits uneasily on the shoulders of this Government, particularly in the northwest of England, is that they do not care about manufacturing industry. It is vital that we should lay this charge to rest. This party and this Government must serve all of our people, not just some. Manufacturing industry must once again feel confidence in us. That confidence is lacking.
  The paper and board industry is an object lesson in recovery and initiative. It has done everything that the Government have asked it to do. It should be used by the Government as a model for others. It should not have to weather Government-inspired storms. If the Minister considers my remarks carefully, he will find that the paper and board industry in my constituency and throughout the country has not let him down. It is time that people were able to feel that the Government have changed their attitude towards manufacturing industry. They could do worse than start with the paper and board industry, which has already done so much for the country and which promises, with the benefit of competition and of a fairer wind all round, to do so much more.
  2.52 pm
  Mr. David Sumberg: I am grateful to my hon. Friend the Member for Bury, North (Mr. Burt) for permitting me to make a brief intervention. He has accurately and eloquently set out the facts relating to the paper industry in Britain. He has rightly concentrated upon Bury, a town which both of us have the honour to represent. It can be described as the home of the paper industry in this country. Time does not permit me to deal with all of my hon. Friend's points, but I endorse and support everything that he said.
  Within its boundaries my constituency has the old Lancashire mill town of Radcliffe on Trent. Radcliffe has a proud history. At one time its name appeared in the title of the parliamentary constituency. The history of the town is inextricably linked with that of the paper industry. When I knew that I was to make this brief intervention I spoke to the chairman of the East Lancashire Paper Company.

  1261
  It is one of the largest mills in Radcliffe. It employs 600 people and recently it celebrated 125 years of paper production.
  I asked the chairman what simple message he would give to the Government on behalf of his company and of the paper makers of Radcliffe if he were standing in my place today. He replied instantly, "Tell the Government that we need to invest heavily in modern capital equipment and machinery in order to compete on the world stage. Our foreign competitors are doing it with the benefit of Government subvention and assistance. Either our Government must do the same — I acknowledge the improvements that have taken place in the last few years — or they must enforce fair trading policies on our partners in the EEC." The paper industry in Radcliffe has the tradition, the skills and the will to succeed. I ask my hon. and learned Friend the Minister to give to the paper makers of Radcliffe and elsewhere in Britain the tools with which to do the job.
  2.54 pm
  The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Howard): I congratulate my hon. Friend the Member for Bury, North (Mr. Burt) on raising the subject of the British paper industry. He represents a constituency in an area that has a concentration of paper and board mills. I know that both he and my hon. Friend the Member for Bury, South (Mr. Sumberg) are closely interested in the fortunes of the industry and wish to see it succeed and prosper. I share that objective.
  This is a timely debate because it will help to register publicly that the United Kingdom has a substantial, forward-looking industry well able to meet the needs of customers here and abroad. The industry suffered badly in the recession with many closures of mills and machines, but it has been fighting back and is keen that more customers should fully recognise its capabilities —as many do already.
  There are some notable investment projects both by traditional United Kingdom producers and by overseas investors. In my county of Kent, Bowater at Kemsley has recently spent £12·5 million on rebuilding a paper machine and on the latest converting and packing equipment. The company now has an impressive, large, modern facility with which to challenge other European suppliers. In addition, Reed at Aylesford has rebuilt its newsprint machine to improve its efficiency and product quality. Near Aberdeen, Thomas Tait and Sons is investing £20 million to build the largest fine paper machine in the United Kingdom, again equipping the company to compete successfully in Europe. Multi-million pound investment programmes have been carried out by other United Kingdom companies too, including Wiggins Teape, GP-Inveresk and Tullis Russell.
  In many mills new computerised process control equipment has helped product quality and efficiency. The industry claims a 39 per cent. increase in output per man since 1979 among the mills making printing and writing paper — which account for over a quarter of the industry's production. The sector of the industry which has seen the most dramatic recovery is newsprint. By 1983 production had fallen to some 80,000 tonnes, or only some
  1262
  5 per cent. of United Kingdom demand, but the United Kingdom has secured two major inward investment projects.
  Consolidated Bathurst of Canada has invested some £50 million to modernise and reopen a mill at Ellesmere Port. United Paper Mills of Finland has invested £130 million to build a new integrated pulp and paper mill at Shotton in North Wales. This new mill was opened by his Royal Highness the Prince of Wales in December, having been completed ahead of schedule. These are excellent examples of the kind of inward investment that the Government are keen to encourage. The industry can now satisfy about a third of United Kingdom demand for newsprint, and I hope that this capacity will be fully utilised.
  Where investment projects have satisfied the relevant criteria, Government assistance has been offered to enable them to go ahead. For example, the Bowater Kemsley project received selective assistance of £1·5 million under section 8 of the Industrial Development Act. Regional selective assistance totalling £6·5 million was offered for the two large newsprint projects at Bridgwater and Shotton. There have been smaller assisted projects too.
  A number of companies have undertaken coal firing projects with Government assistance. In some other cases, investment projects have helped to demonstrate innovations in energy efficiency and it has been possible to offer assistance under the energy demonstration scheme. In 1984 the industry is reported to have invested over £6·5 million in energy-related capital projects with an average expected payback of 1·6 years.
  The industry is increasingly committed to its energy management monitoring and targeting programme developed in close co-operation with the Department of Energy which has provided financial support. I congratulate the industry on its efforts. I would also like to take this opportunity to acknowledge the hard work and commitment of the British Paper and Board Industry Federation, whose staff has done so much to develop the programme and encourage member companies to apply it. In 1984, the industry used 5 per cent. less energy than in 1983 to produce 12 per cent. more paper and board.
  My hon. Friend the Member for Bury, North has made a number of interesting points in his speech, to which I now turn. He referred to interest rates and the importance of keeping them as low as possible. I am sure that he recognises that interest rates will continue to be held at the lowest rate that is consistent with the need to maintain monetary conditions and keep steady downward pressure on inflation. Inflation would cause far more damage to industry if it were to take hold again. The recent moves on interest rates reflect our determination to ensure that it does not.
  I appreciate the significance to the industry of exchange rates, but they are ultimately determined by the underlying competitive strength of our economy and the economies of our trading partners. Greater stability in the exchange markets is clearly desirable, but no country can achieve that single handed. We aim, therefore, to achieve it through co-operation with our major trading partners. An example of that was the agreement of the Group of Five countries last September that orderly depreciation of the dollar was desirable. Since then, the dollar has moved towards a more sustainable level and the pound has declined against the mark, the franc and the yen.

  1263
  My hon. Friend mentioned membership of the exchange rate mechanism of the European monetary system. The Government are ready to join the exchange rate mechanism when we judge that the conditions are right, but the decision must be carefully weighed. Sterling is widely held and traded internationally, and it is subject to different and often opposite strains from currencies that are already in the exchange rate mechanism. Furthermore, it is by no means certain that opinion even in the paper industry is unanimous on this matter.
  The changes in capital allowances are in line with the Government's policy of simplifying the tax system and eliminating distortions. The burden of tax administration for companies and Government will be reduced, and companies are encouraged to concentrate on identifying and investing in profitable projects. The changes will reduce overall corporate taxation in the longer term. The effect on individual companies will depend on past investment and profitability and on the availability of unused allowances. Advance notice of the changes has given a secure planning environment. I am aware that the paper federation has already made known the industry's views on capital allowances in its Budget representations to my right hon. Friend the Chancellor of the Exchequer, and I am sure he will consider them carefully.
  My hon. Friend the Member for Bury, North also mentioned alleged dumping of Kraft liner. This is an important matter. I fully appreciate the industry's concern. Officials from my Department have asked representatives of the industry to provide additional information, including evidence of breaches in the minimum import price. The Department would be glad to review the matter with the industry, and I believe that the industry's European association is planning to consult again the EC Commission, which has the main responsibility in these matters.
  My hon. Friend mentioned oil and the importance of taking advantage of the fall in price. He also spoke about electricity. Electricity prices for most UK consumers are comparable with those on the Continent. The exception is France, where consumers benefit from extensive low-cost nuclear generation. The level of prices is the responsibility of the electricity industry. The Government set the financial framework for the industry to ensure that it earns a proper return. The Government acknowledge, however, that the largest users face higher prices, and we appreciate the difficulties that that causes. Following extensive discussions in the National Economic Development Organisation and with the industry, the Central Electricity Generating Board and the National Coal Board have been working on proposals which could result in lower prices
  1264
  for the most intensive users, as in the paper industry. The proposals have still to be finalised, but I hope that decisions will not be long delayed.
  As for the starch regime, I am pleased to say that considerable progress has been made on the proposals of the European Commission, which are designed to help industrial users of starch in the Community. The Council of Agriculture Ministers will be asked to take a decision on modified proposals at its meeting on 24 February. To a large extent, the proposals meet the desires of the paper and board industry.
  I listened to what my hon. Friend said about detailed proposals, which he is to send to the Department, for assistance with various new technologies. My Department is always ready to listen to proposals on that subject. Indeed, support is already given for innovative projects which meet the Department's criteria. The industry has benefited from the relevant scheme. The scheme has been used to assist two projects which are designed to demonstrate to the industry as a whole the benefits of applying new technology. Both are taking place at Thames Board at Purfleet. I am sure that the details are known to those who take a close interest in the industry's future.
  My hon. Friend the Member for Bury, South raised, in particular, the East Lancashire Paper Mills in his constituency, and I am delighted that he was given the opportunity of referring to them. That company has also been preparing for the future. I know that my hon. Friend the Member for Rossendale and Darwen (Mr. Trippier), when Parliamentary Under-Secretary of State for Trade and Industry, met company representatives, and encouraged them to keep in touch with the Department. Following the review of regional policy, the mills are now in an assisted area. My officials in the north-west regional office are happy to discuss with the company the question of assistance for any potential future projects.
  The industry is too often remembered for its difficulties. It is now aware of the need to spread the message of its successes. An impressive initiative in that direction is the recent publication of a newspaper about companies which make printing and writing paper. The newspaper draws attention to their strengths, and highlights recent developments, especially the large-scale investment for the future which has taken place. I welcome that positive approach, and I know that the industry is considering other possible initiatives.
  I hope that between us my hon. Friend and I have said enough to show that paper and board is an industry looking to the future with more confidence and much to offer its customers at home and abroad. I wish it every success.
  Question put and agreed to.
  Adjourned accordingly at five minutes past Three o' clock.

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