Clause 1 - Power to borrow
Local Government Bill
9:15 am
Mr Nick Raynsford (Minister of State (Local and Regional Government), Office of the Deputy Prime Minister; Greenwich and Woolwich, Labour)
The hon. Gentleman was true to his word. He was brief and to the point, and asked a pertinent question. I, in turn, shall not give the Committee a detailed explanation of the clause, but it is important to clarify the significance of the two parts of it. The major innovation under part 1 of the Bill is the introduction of what is now referred to as the prudential system for local authority borrowing. The logical starting point for that is the general power to borrow, which is the subject of the clause.
Local authorities have always been able to borrow. Clause 1(a) preserves their existing broad power to borrow
''for any purpose relevant to''
any of their statutory functions. Subsequent clauses, to which we will turn shortly, make provision for borrowing procedures and the level of borrowing. However, none of them restricts the wide-ranging purposes for which borrowing may be undertaken in accordance with clause 1(a).
Under the current legislation, which was introduced in 1990, there are technical doubts about the lawfulness of borrowing to repay existing debt—which comes to the meat of the concern raised by the hon. Member for Runnymede and Weybridge. Clause 1(b) deals with that concern. The refinancing of debt is a widespread practice and has full Government approval. Indeed, a large part of the money lent by the Public Works Loan Board to local authorities is for that very purpose. It gives local authorities flexibility over the timing of loan repayments and makes it possible to negotiate more favourable interest rates.
Many members of the public do something very similar with the mortgages on their homes. The practice is current and widespread, but current legislation does not confer an explicit power on local authorities to borrow for such a purpose.
Local authority lawyers have widely and, I suspect, wisely concluded that there is an implicit power; we see no reason to dissent from that judgment. However, that situation is not satisfactory, so, in clause 1(b), we make it clear that local authorities will have an explicit power to borrow for the prudent management of their financial affairs. That will enable them to borrow to repay existing debts, provided that they are satisfied that it is prudent to do so.
Clause 1(b) is also needed because certain other borrowing procedures may not be fully covered by clause 1(a). One issue that arises is that individual loans cannot easily be linked to particular statutory purposes of the kind referred to in clause 1(a). Authorities aggregate their borrowing requirements and a single loan may help to fund several capital projects as well as meeting temporary cash flow needs and, perhaps, refinancing old debts. The ability to relate loans to specific statutory purposes may not therefore be easy.
In addition, there is no close link between the timing of borrowing and expenditure. Borrowing for capital projects is sometimes postponed if interest rates seem likely to fall; in the meantime, expenditure is met out of temporary surplus cash. On the other hand, if interest rates seem likely to rise, loans may be taken out some months ahead and invested until spending need arises. Clause 1(b) confirms the lawfulness of such Treasury management practices—subject, in all cases, to the requirement of prudence being met.
I hope that I have answered the hon. Gentleman's question and that he is happy with my recommendation that the clause stand part of the Bill.