Mr. John M. Taylor
To ask the Secretary of State for the Environment whether he has any proposals for regulating local authorities' involvement in Companies Act companies; and if he will make a statement.
§ Mr. Howard
My right hon. Friend has today published a consultation paper setting out proposals for a statutory framework for local authorities' involvement in companies. Copies of the paper have been placed in the Library.
The report of the committee of inquiry into the conduct of local authority business (the Widdicombe committee) highlighted a number of concerns about companies used by local authorities, under their control or influence, to conduct various activities. In the light of these concerns, the Government have examined the policy issues involved, with the help of specialist assistance from Coopers and Lybrand. As background to this work, my Department conducted a survey of local authorities about their involvement with companies, the results of which are set out in the paper. The survey found that companies are being used by authorities for a very wide range of activities and that their number and the scale of operation is tending to increase.
The Government do not wish to prevent local authorities from becoming involved in companies where there are operational advantages in doing so. Local authorities' use of companies has proved useful in a variety of cases, particularly in joint ventures with the private sector.
The Government have, however, concluded that it is anomalous that local authorities' interests in companies, and the control of influence that these can give, are outside various rules governing the conduct of local authority business, which are intended to ensure that local 20W authorities demonstrably conduct their affairs in accordance with the principles which should govern all public authorities. The proposals set out in the consultation paper are designed to remove this anomaly.
The essence of the proposals is that where a local authority or authorities control a company or have a dominant influence on it, there should be, and should be seen to be, accountability and propriety in the conduct of its affairs; and that such companies should not be capable of being used as a means of avoiding the controls imposed by Parliament on local authorities. These objectives are more difficult to achieve in cases where local authorities do not control a company. It is therefore proposed that local authorities will be able to hold a minority interest in a company only in circumstances where an important policy end is served. The paper sets out the circumstances proposed by the Government.
My right hon. Friend the Secretary of State for Wales is consulting separately on these proposals.