Clause 2 - Control of borrowing
Local Government Bill
9:45 am
Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)
Having debated the borrowing powers and borrowing freedoms that local authorities will have, we will now consider three clauses about controlling those freedoms. Although Liberal Democrats accept that there should be control—prudential control and control as a backstop in the event of a macro-economic crisis—we believe that the Government's control regime in clauses 2 to 4 is too prescriptive and that the Secretary of State keeps far too many reserved powers, which could be used in circumstances far beyond prudential control or control in the event of real macro-economic crises. That is the main thrust of the debates that we are about to have.
Amendment No. 52 would make the prudential control regime the focus of the limitations. In its references to sections 3 and 4, clause (1) establishes the means by which the Secretary of State can interfere at will in local authorities' decisions about borrowing. It also establishes a way in which the Government can decide to limit local authorities' expenditure from Whitehall.
If the Government are committed to a prudential capital regime, first and foremost, they would not seek such powers. We cannot see why the Government need such broad and wide-ranging powers. The powers could be far more narrowly defined, which would give greater clarity and freedom to local authorities.
We accept that the Government are working with CIPFA. I have its draft code, to which our amendment refers. I have flicked through the code and it seems to be sensible and moves in the right direction. It shows how a code produced by a professional body can be flexible and cover all the nuances and subtleties that are inevitable in a complex capital control regime. It is best practice. To lay on top of that the Government's ability to intervene willy-nilly is unnecessary and goes against the thrust of a welcome change in the philosophy of control of local authorities' capital spending.
The case has not been made in the Bill, the Government's reply to the Select Committee or the White Paper, for the extent of powers sought by the Government to limit local authority borrowing. Amendment No. 52 would therefore help to improve the legislation.
Amendment No. 54 is linked to amendment No. 52, although it relates to clause 3. It would include the role of CIPFA in primary legislation, and local authorities would not need to rely on regulations that could be changed willy-nilly at the Minister's discretion. The amendments go well together.
The Committee should remember the controls that already exist with regard to local authority capital spending, especially under sections 32 and 33 of the Local Government Finance Act 1992. Those provisions place a duty on local authorities to calculate their budget requirements for each financial year. Annex B13 to the Government's Green Paper ''Modernising Local Government Finance'' states that the budget requirement includes calculation of
''the revenue costs, which result from the capital investment decisions of the authority. These costs include capital financing
costs (interest and loan repayment provision) and running costs. Section 33 of the Act requires the local authority to set a council tax sufficient to meet its expenditure taking into account other sources of income such as government grants and non domestic rates.''
In other words, sections 32 and 33 of the 1992 Act already give the Government significant powers to control the capital financing regime of local authorities throughout the country. Those are on top of the CIPFA code and, hopefully, more narrowly-defined reserved powers in respect of macro economic reasons.
I do not understand why the Government need to establish such an elaborate system of control when they already have those powers, which are complemented by the prudential capital regime—which we support—in the CIPFA code. The Committee should accept amendments Nos. 52 and 54 because they would implement the Government's intentions far better than the provisions in the Bill as drafted.
There is a danger that the Chancellor's love affair with prudence will be seen in towns throughout the country rather than the town halls' own prudential regime, which is what the Government promised and what they should be relying on.