§ Mr. Gummer
We announced our intention in the White Paper "The Conduct of Local Authority Business" to propose a new general, but circumscribed, power to engage in economic development initiatives. We have now reached conclusions about the form of this power in England and Wales. The different existing powers for Scottish local authorities mean that the proposal there will follow a separate timetable.
The new power will greatly simplify the position. At the moment local authorities have no specific powers for economic development spending, but can use a number of other powers. The aim is to make sure expenditure by local authorities can be targeted for maximum benefit.
The new power will be framed as a general power to undertake expenditure to facilitate economic development by others, to manage and turn to account assets acquired by such expenditure, and to make charges in connection with the provision of assets and services under the new powers. Economic development will cover investment in, the setting up or expansion of, or the creation or maintenance of employment in commercial, industrial or public undertakings within their localities. These general powers are intended to replace existing powers to the extent that they are used for these purposes.
The Government are firmly of the opinion, however, that there are certain areas of activity which are not appropriate for local authorities. The general powers will therefore be subject to restrictions to be specified in regulations. The Government will consult loci authorities and others about these regulations.
The present intention is that local authorities themselves should not be able to undertake most direct manufacturing and trading activities, banking, insurance business, investment broking, the media, and the provision of certain professional services such as conveyancing and audit.
Restrictions will also prevent the new powers being used for certain forms of expenditure such as deficit financing and for grants specifically to support wages and salaries. While the new power will be available to all principal local authorities, expenditure on grants, loans and guarantees to businesses conducted with a view to profit will be restricted to areas which have a particular need to promote economic development.
These areas will be detailed in the regulations following consultation and will include at least all those areas which 261W currently benefit from some form of central Government priority. There will be a power to adapt the definitions to changing circumstances.
Uses of the new powers may be capable of constituting "state aids" subject to restriction or notification under articles 92 and 93 of the treaty of Rome. Where this is a consideration, provision will be needed for notification and clearance with the European Commission through the Department of the Environment and the Welsh Office.
Local authorities will be required to prepare a separate memorandum account of their activities (both on capital and revenue account) under these new powers. They will be required to consult representatives of the local business community (possibly in the context of the consultations already required under section 134 of the Local Government Finance Act 1988) on their proposals for the use of the new powers. They will also be required to take into account any guidance issued by the Government to promote value for money and consistency between Government and local authority initiatives.
The Government have considered the question of a financial limit on the use of the new power, to which they referred in the White Paper. They do not consider that the new power should lead to any significant change in the level of local authority activity in this field, since it is intended merely to simplify the framework within which this activity takes place. In these circumstances, they have concluded that it would be inappropriate to set any general financial limits on the use of the power: the general financial disciplines to which local authorities are subject will be sufficient.
As a reserve power (to deal, for example, with circumstances where one local authority is distorting the local economy to the disadvantage of neighbouring areas), there will be provision for the Secretary of State to impose a limit on individual authorities' spending under the new power. However, this power is intended as a reserve power, since the Government are not aware of any current circumstances which would justify any use of such a power.