Mr Philip Hammond (Runnymede & Weybridge, Conservative)

I beg to move amendment No. 6, in

clause 4, page 2, line 26, after 'the', insert 'aggregate level of'.

Mr Derek Conway (Old Bexley & Sidcup, Conservative)

With this it will be convenient to discuss the following:

Amendment No. 28, in

clause 4, page 2, line 26, at end add

'and the allocation of a share in such aggregate limits to individual local authorities.'.

Amendment No. 7, in

clause 4, page 2, leave out from beginning of line 27 to end of line 2 on page 3 and insert—

'(2) No regulations may be made under this section unless—

(a) the Secretary of State has consulted such representatives of local government as appear to him to be appropriate;

(b) he has laid before each House of Parliament a report explaining the reasons why he considers it necessary that the regulations be made; and

(c) the report has been approved by resolutions of each House of Parliament.

(3) Sections 117(1) and (2) do not apply to regulations made under this section.'

Amendment No. 49, in

clause 4, page 2, line 27, leave out subsection (2).

Amendment No. 29, in

clause 4, page 2, line 28, leave out from 'authority' to end of line 29 and insert—

'where he considers that the local authority has not, in setting a borrowing limit under section 3(1), had proper regard to the requirements of section 3(2).'.

Amendment No. 31, in

clause 4, page 2, line 31, at end insert—

'( ) A limit set under subsection (1) or (2) may not, in respect of any local authority, be set a a level less than the level of that local authority's borrowing on the date that the draft regulation is laid.'.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

Clause 4 is one of the most controversial clauses. It is one on which the Select Committee had something to say. In its original form, the draft Bill did not refer to the national economic reasons in subsection (1), which appeared as an additional power for the Secretary of State to set limits on local authorities.

In his evidence to the Select Committee, the Minister asserted the Government's need to be able to impose additional national limits in a macroeconomic crisis. It is good that the Government are focused on the economic cycle and the gathering storm clouds. A macroeconomic crisis may hit us at some stage. That is in marked contrast to what we heard from the Chancellor, until recently. He has not talked about the end of the business cycle in the past six or eight months. Certainly, during his first four or five years in office, he believed the business cycle had ended.

The Minister said that those powers might be necessary. As a sop to the Select Committee, he inserted into subsection (1) the phrase ''for national economic reasons'', which says nothing concrete. Perhaps the Chancellor's technical adviser could think of a more technical term than ''national economic reasons''. There is no test for their measurement and thus no basis on which to challenge the Government's assertion that they exist.

I am proud to claim no authorship of amendment No. 7, the substantive one in this group. It is the recommended, alternative version of clause 4 suggested by the Select Committee during the pre-legislative scrutiny process and it has considerable appeal.

Mr Robert Syms (Poole, Conservative)

Portugal, Germany and France have difficulty with the 3 per cent. deficit. In future, if the Government get their way and we become part of the eurozone, the 3 per cent. limit might restrict local authorities' ability to borrow. The Government would have to suppress the borrowing level to live within those limits.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

My hon. Friend raises a very interesting point. I had not thought of those

provisions in terms of the possibility that one day the Government might have to enforce the growth and stability pact in the UK to make local authorities and local council tax payers pay for any euro adventure that they might undertake. My hon. Friend has obviously thought carefully about these issues.

The substantive amendment of the group, amendment No. 7, provides, first, that in very extreme circumstances—a macroeconomic crisis—the Minister would have to consult with local government before taking action. I would be very surprised if he said anything other than it would be inconceivable for the Secretary of State to take such action without consulting local government. The Select Committee believed that the provision should be on the face of the Bill. The fact that the Select Committee has recommended it certainly recommends it to us.

Secondly, the amendment provides for the Government to report to Parliament to explain the macroeconomic reasons that gave rise to the need to limit local authority borrowing.

Thirdly, there should be an affirmative resolution of both Houses to approve the order that imposed the new limits on local authorities. The procedure is used in an extreme macroeconomic crisis only, such as the Labour Chancellor turning his car around on the way to Heathrow airport and being hauled back to see the International Monetary Fund in Downing street, if the IMF were ever to visit us again.

Amendment No. 7 would also eliminate subsection (2) and take away from the Secretary of State the power to set individual borrowing limits on local authorities for reasons other than national economic emergency. In our previous discussions we have already probed the need for subsection (2) and the Minister has addressed those issues.

Subsection (2) implies that the Government see the freedoms given to local authorities as licensed. Authorities will be allowed to police themselves as long as the Government have the power to slap them down if they do something that the Government do not like. I suspect that that is the reasoning of the Select Committee in seeking to eliminate subsection (2). That would remove any possibility of discrimination between authorities, or classes of authorities.

Amendment No. 6 would clarify that local authorities' aggregate borrowing is the target of clause 4(1). Only aggregate borrowing is relevant to macro-economic management in this case, so the amendment would make that explicit. Amendment No. 28, by introducing additional words at the end of subsection (1), deals with the question of allocating that aggregate borrowing limit between different authorities.

There will be concerns about how the Minister would use his power in such situations to allocate borrowing limits to authorities. Would those who had been prudent be penalised, and those who had been profligate rewarded? Would authorities that were doing things that the Government happened to like

be treated better than others, or would there be some mechanical allocation of the overall aggregate limit to individual authorities, perhaps a standard fraction of their clause 3(1) borrowing limits? It would be helpful if the Minister explained what he has in mind.

There are no regulations under the clause at present, and there will not be any until there is a macro-economic crisis to deal with, but I hope that the Minister has thought about the question of sharing the pain between authorities. We need an aggregate limit, because in an economic crisis the markets will be looking for one. We need to know how the individual limits will be determined.

I shall leave subsection (2) for the Liberal Democrats to deal with under amendment No. 49. I should like to quote the Select Committee report to the Minister. The hon. Member for Kingston and Surbiton has already quoted Mr. Travers saying:

''The same legislation would indeed allow the Government to operate a very different capital control system, one similar to or even more controlled than the present one.''

The Minister should take that concern on board. The Local Government Association told the Select Committee that clause 4 would give the Secretary of State a power to impose a borrowing limit on an individual authority, irrespective of whether the power to set a national limit is retained. The power is unnecessary, given that the authority will have to comply with CIPFA prudential code when it determines its borrowing needs. The provision should be removed.

Amendment No. 29 addresses that issue. The Local Government Association suggested that the power to impose individual limits on authorities should be removed, other than as part of an aggregate macro-economic national emergency limit. As ever, in the spirit of compromise and the search for consensus, the amendment would leave in the power but qualify it to make it clear that the Secretary of State can act only under clause 4(2) where he believes that a local authority has failed to have proper regard to the codes when determining its borrowing limit under clause 3(1).

I have tried to tempt the Minister down that path before, and would like a clear answer from him. Is that the circumstance in which the powers under clause 4(2) would be used? If he cannot accept that limitation on the Secretary of State's powers, will he say in which other circumstances should an authority that complies with the requirements under clause 3(1) and has proper regard to the codes of practice specified by the Secretary of State be hauled up before the beak and subjected to a special sentence issued by the Secretary of State? It is not apparent how any such circumstances would arise in peacetime. Moreover, in the extraordinary circumstances of a national economic emergency, the Minister already has powers under clause 4(1).

When we discussed the subject earlier, the Minister drew a comparison based on the current regime of capital approvals, and said that local authorities might find ways of avoiding those approvals, which was why we needed these wide-ranging powers. I suggest to the

Minister that a regime based on a code of practice that reinforces standard accounting practices is not susceptible to avoidance in the same way as a prescriptive regime of capital approvals might be. The power in its unqualified form is wholly unnecessary, and is merely an example of the instinct to keep hold of reserve powers and not to let go.

Amendment No. 31 is simply a pragmatic amendment. I hope that the Minister will say that he accepts it or that he will give the Committee some other reassurance that its intended effect will be incorporated into any regulations that are issued in future. The amendment would require that the level set for any authority should never be below that authority's existing level of debt. It is surely not the intention that an authority could be put in breach of its statutory obligations at the stroke of a ministerial pen by the setting of a level that was below the authority's existing level of debt. That returns us to the question of allocating the pain between authorities, certainly when there are national economic reasons.

If the Minister were to accept my argument, authorities that have been prudent and have low levels of borrowing relative to their borrowing limits would have to take more of the hit to achieve a given macro-economic effect, because authorities that are close to their borrowing limits cannot, in practice, have their borrowing limits cut. That relates to my main concerns about the direction in which the clause is going on the allocation of any limits that are set in aggregate to individual authorities and how the Government might go about setting limits for individual authorities under subsection (2), when those authorities are fully compliant with their obligations under clause 3(1).

Mr Edward Davey (Kingston & Surbiton, Liberal Democrat)

The hon. Member for Runnymede and Weybridge is right to say that the clause is very important. There are two key issues. First, under what economic circumstances should we be happy for central Government suddenly to control the aggregate of local authority expenditure? That is the first big issue. The second big issue is whether we should allow the Secretary of State, outside of any economic crisis, to intervene to cap the borrowing of any individual authority.

On the first issue of national economic circumstances, we have two bites at the cherry. In this group of amendments we have amendment No. 7, which, as the hon. Member for Runnymede and Weybridge said, borrows from the Select Committee report. In the next group of amendments we have new clause 2, which I will talk about when we reach the clause stand part debate.

I will now touch on the general issue in relation to amendment No. 7, which takes the admirable approach recommended by the Select Committee. It does not set out the type of economic tests that need to be considered. I would prefer it to do so, which is why I tabled new clause 2. However, the amendment allows each House of Parliament to consider properly the information on which the Government are making their decision. That is the right approach. The Minister has said, and it is in the explanatory notes, that this is very much a last ditch power that the Government

hope not to have to use. The fact that it is such a huge power means that it should be used only if it is accompanied not just by the issuing of regulations, but by a proper process whereby the information on which the Secretary of State is basing the use of the power is laid before Parliament and a debate ensues. The Liberal Democrats will certainly support amendment No. 7, and I hope that the hon. Member for Runnymede and Weybridge intends to put it to a vote. It is particularly important to vote on it because it comes from the Select Committee's report. There may well be Labour Members who, having read that report, wish to support amendment No. 7.

I will say more about national economic issues when we reach the next group of amendments. I want to deal in greater detail with amendment No. 49, which would delete subsection (2) entirely. The Liberal Democrats think that the powers that the Secretary of State wants to have to interfere and cap the borrowing powers of local authorities are completely over the top. When one considers the Bill and other legislation, one realises that there are enough controls. Indeed, there is a huge range of controls to ensure that local authorities do not misuse their powers. If we listen to the Select Committee, we can be in no doubt about that.

Under the Bill, we will have the prudential system and the CIPFA code, which, as we have heard, can be revised and reviewed in the light of experience. The CIPFA code will be a powerful tool and will judge the affordability of each local authority's expenditure. I have had reason to refer to the code during today's proceedings. I ask hon. Members who are in any doubt about what the hon. Member for Runnymede and Weybridge and I are asserting to read the draft code. There are huge numbers of guidelines and proposals, which, if a local authority were abiding by them, would ensure that there would be no danger of a local authority misusing its borrowing power. The code is therefore at the heart of the system.

Secondly, we have just passed clause 3(1), which will make it illegal for a local authority to breach the affordable borrowing limit set by the code. Such a safeguard is already in place and there are other safeguards, which we have already mentioned. I will not repeat those safeguards in detail, but they are in sections 32 and 33 of the Local Government Finance Act 1992. Section 76 of the Local Government and Housing Act 1989 deals with housing debt, and my hon. Friend the Member for Southport has talked about statutory duties on local authority finance officers.

Then there is the electoral test. If a local authority tries to raise its council tax too high, the local electorate can throw it out. There is a range of financial, legal and political tests, but the Government want another power. It is not surprising that the Select Committee, the LGA and the Local Government Information Unit, which is again an all-party group, said that subsection (2) should not be in the Bill.

When the Government replied to the Select Committee's report, which suggested deleting clause 4(2), they said:

''It could be necessary, in exceptional cases, to protect local taxpayers from the consequences of irresponsible borrowing by their authorities.''

The response does not refer to the other controls, which I have listed, but the Government apparently still need an extra power. It is a reserve capping power and we should be under no illusions about it.

Interestingly, the response shows that the Government were not sure on the issue in November 2002, when they said:

''The power must be retained in the Bill, but the Government is again considering whether the clause could be amended to express the White Paper policy intention without undermining the safeguard it provides.''

In other words, they were stung by the Select Committee's criticism and the way in which representatives of local government, particularly the LGA, had looked at the draft Bill and said, ''You do not need these reserve powers.'' It appears that they have looked at the matter again and have decided to make no changes. I deeply regret that, and Government Members should also regret that. When their colleagues considered the power, they said that it should go. It is widely judged to be unnecessary, and I urge the Minister to say that he is relaxed about the deletion of subsection (2).

I do not want to talk in detail about the other Conservative amendments in this grouping, except to say that they are worthy. I look forward to the Minister's trying to defend his position and persuade the Committee that we should not support the amendments.

Several hon. Members rose—

Mr Derek Conway (Old Bexley & Sidcup, Conservative)

Order. Before I call another hon. Member, I make it clear to the Committee that we shall debate the content of new clause 2, which of course relates to the matter in hand, when we come to the clause 4 stand part debate. If any hon. Member wants to call a Division on an amendment in this group other than amendment No. 6, they should indicate their wish to the Clerk during the debate and I will call it accordingly.

Mr Andrew Turner (Isle of Wight, Conservative)

There was a certain circularity about the argument made by the hon. Member for Kingston and Surbiton. He said that if the local authorities were complying with the code of practice, they were not acting improperly. The point is that the code of practice is designed to define whether they are acting improperly. For one moment, let us put ourselves in the Government's position—in the hope that we can put ourselves in that position for longer at some point in the future. From time to time, Governments have to deal with situations such as that in Hackney. They may have to deal—I hope not—with a national economic disaster. However, that is the only extent to which I am prepared to put myself in the Minister's shoes. If the Government end up with a national economic disaster of the kind that they do not anticipate but are making ample provision for, they should take the necessary powers to control local

authorities then, rather than preparing for it as they are doing in the four clauses that we have debated so far.

I cannot believe that Ministers think that a national economic disaster will creep up on them so unobserved that they will not have time to take the legislative and other powers that are necessary to address local authority borrowing, but that their officials will have time to work out a scheme that can be introduced by regulation and contain derogations for local authorities that may or may not be Labour-controlled and whose borrowing may be prudent in the round but not in the context of a national economic disaster.

My great concern is that the Government feel that it is essential to include the powers in the Bill. Why do they not plan to deal with a national economic disaster when it is imminent rather than take the powers now? Once a Government of any political persuasion are armed with such powers, those powers are easily abused. If we give such powers, Governments will always find an excuse to use them. If we withhold them, they will have to ask Parliament for the powers when the time is appropriate.

Mr Robert Syms (Poole, Conservative)

I will speak along similar lines. Clause 4 refers to national economic reasons, and from the code of practice produced by CIPFA, it seems that most indicators are annual. Most would be done at the time of the annual budget, and, as is stated in the code, one would revise one's estimates after 12 months before drawing up the performance indicators for the forthcoming year. Only a small part of the code refers to the finance officers reporting whether anything has varied during the year. I agree with my hon. Friend the Member for Isle of Wight that we are likely to get accurate figures and to be able to impose a degree of control only at the end of a financial year, so I am not sure whether the provision is needed in the Bill. In the event of some crisis, I am sure that the Government would legislate immediately to deal with higher expenditure, as well as other emergency legislation that does not focus on this aspect of the Bill.

I also agree with my hon. Friend the Member for Runnymede and Weybridge that there would be a tremendous temptation for a Government to use the reserve power. To include provisions in legislation on the assumption that we will have an economic crisis is unnecessary, as the House of Commons can quickly and effectively deal with an emergency. One benefit of the first-past-the-post system, which means that we usually have a majority Government, is that we can govern during emergencies to sort things out. I do not believe that the powers need to be in the Bill, and I await further justification from the Minister.

Mr Nick Raynsford (Minister of State (Local and Regional Government), Office of the Deputy Prime Minister; Greenwich & Woolwich, Labour)

This complex group of amendments relates to clause 4, which enables the Secretary of State to impose national or local borrowing limits. That crucial reserve power provides important safeguards, and I do not intend to repeat the arguments that we have already heard. The hon. Member for Isle of Wight accepted the argument in the case of national need but not local need, while the Liberal Democrats are opposed to imposing any restriction on local

authorities, so I understand that there are different points of view. I wish to explain why we regard the amendments as unhelpful, unnecessary or, in some cases, undesirable and why we believe that the arrangements in the Bill are the right way to extend freedom to local government within that prudential regime, which will ensure proper financial responsibility in decision making.

Clause 4(1) enables the Secretary of State to limit local authority borrowing if it seems likely to exceed the level that is nationally sustainable. Clause 4(2) enables the Secretary of State to impose a limit on an individual authority to stop it borrowing unaffordably. Amendments Nos. 6 and 28 must be taken together and would change clause 4(1). It would then refer to the setting up of an aggregate limit for local authority borrowing and each authority's share in that aggregate limit. In our view, that is not necessary. Before I explain why, I wish to say that we envisage using the power only as a backstop. We have no intention of using it except in extreme circumstances, so we do not have detailed arrangements worked out.

In response to the hon. Member for Runnymede and Weybridge, I wish to make it clear that we will consult local government before using such powers. Although we have no detailed plans for implementation, whatever formula we use, it will be calculated to produce the right aggregate result nationally. That is implicit in the obligation to take account of the national economic situation when setting a limit under clause 4(1). I am satisfied that the idea of an aggregate limit and the authorities' share in that aggregate limit is already implicit in the clause. The amendment adds nothing to the Bill and would not improve clarity.

Amendment No. 7 partly reflects the recommendations in paragraph 14 of the report of the Select Committee—the hon. Member for Runnymede and Weybridge emphasised the fact that he had not drafted it. I was aware that it was a piece of blatant plagiarism on his part, but fair enough, he has chosen to lift the suggestion from the Select Committee.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

I have to intervene because there is clearly a pejorative implication in what the Minister has just said. Does he think that when Select Committees scrutinise a Bill under the pre-legislative scrutiny procedure and recommend a change to it and the Government do not implement that change, it is incumbent on the official Opposition to pick up that proposed change and test the Minister's reasons for rejecting the recommendation?

Mr Nick Raynsford (Minister of State (Local and Regional Government), Office of the Deputy Prime Minister; Greenwich & Woolwich, Labour)

I do not believe that such action is incumbent on the Opposition. It is proper for the Opposition to take it, but it is equally proper for the Government to consider recommendations from a Select Committee, to agree those that they think sensible and soundly based, and to reject those that they do not consider justified. That is exactly what we have done. We were happy to accept the Committee's suggestion that it should be made clear that national economic reasons were the motive for the provisions in clause 4(1).

We also made a change to clause 4(2) to make it clear that it would be used to prevent unaffordable borrowing. We did that in response to consultation. There should not be a statutory requirement for parliamentary approval before setting a national limit. Any such limit would inevitably have been subject to parliamentary debate and indeed scrutiny, but the limit would need to be imposed quickly due to the economic requirements. A lengthy inquiry could well be counter-productive.

Mr Edward Davey (Kingston & Surbiton, Liberal Democrat)

Will the Minister explain to the Committee the procedure by which Parliament has already considered that expenditure?

Mr Nick Raynsford (Minister of State (Local and Regional Government), Office of the Deputy Prime Minister; Greenwich & Woolwich, Labour)

Parliament considers the estimates of the Government's expenditure, as most hon. Members are aware. There is no need for a statutory instrument to consult local government. We make many important decisions affecting local authorities and always undertake proper consultation in accordance with well-established agreements between central and local government. We have already given clear commitments to local government representatives that they would be fully consulted about any need to set a national borrowing limit.

Amendment No. 7 would also eliminate the important flexibility conferred by subsections (4) to (6), which would allow authorities to transfer borrowing headroom between themselves under a national limit without Government consent. They make no difference to the total effect at national level and would ensure that borrowing capacity was distributed efficiently and not wasted. The provisions also help to underline the fact that the clause 4(1) power is directed only at protecting the national economy. I am surprised that the amendments tabled by Conservative Members would eliminate the helpful headroom that would allow the proper implementation of the arrangements.

Amendment No. 7 also seeks to disapply clause 117 when regulations on a national limit are made. It allows different provision to be made for different descriptions of authorities. Such flexibility could be important in spreading the impact of a national limit fairly between authorities, so the amendment would not be helpful or appropriate.

Amendments Nos. 29 and 49 relate to subsection (2), which allows the Secretary of State to impose limits on individual authorities to prevent locally unaffordable borrowing. Amendment No. 29 is unnecessary; it would make the power in subsection (2) explicitly dependent on disregard of regulations under clause 3(2), but that is the practical effect of clause 4 as drafted. We would consider imposing a limit on an authority if it was seriously failing to observe the requirements of the prudential code specified by regulations under clause 3(2). Clause 4(2) is far more transparent and makes it clear that the ultimate policy is to prevent imprudent borrowing. I have already emphasised that that provision was included in the Bill in response to consultation, instead of a simple failure

to follow a code, as it is better to make it clear that the objective is to avoid imprudent borrowing.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

The amendments must be read together. The intention of amendment No. 29 is clear not from considering clause 3(2) as drafted but as it would be post-amendment No. 7, which is effectively the power in clause 3(4) as drafted. I hope that I am making myself clear.

Mr Nick Raynsford (Minister of State (Local and Regional Government), Office of the Deputy Prime Minister; Greenwich & Woolwich, Labour)

The hon. Gentleman is, but for the reasons that I have already explained, amendment No. 7 has a series of undesirable consequences in that it removes the necessary flexibility, for example on headroom. We would not, in any circumstances, accept it. Amendment No. 29 would have the impact that I described; it is less satisfactory than the wording in clause 4(2) as drafted.

Amendment No. 49 would remove the entire provision, which is a typical Liberal Democrat view of the world, based on never-never land where bad things never happen. Sadly, in the real world, bad things do sometimes happen. Local authorities get into difficulty; some are badly run and need intervention or help to turn things round.

Mr Paul Marsden (Shrewsbury & Atcham, Liberal Democrat)

Will the Minister give way?

Mr Nick Raynsford (Minister of State (Local and Regional Government), Office of the Deputy Prime Minister; Greenwich & Woolwich, Labour)

I will in a moment, but I want to respond to the points made by the hon. Member for Kingston and Surbiton.

There is a need for a new and mature relationship between central and local government based on a recognition that things can go wrong. It is important to take preventive action to stop situations deteriorating and corrective action to deal with problems when they arise and that is what our policy is designed to achieve. It has been bitterly opposed by the Liberal Democrats, and by many Conservatives, but the introduction of the comprehensive performance assessment and corporate governance inspections by the Audit Commission have helped to identify weaknesses and to take effective preventive action in advance of serious problems arising.

In several authorities we have seen the positive consequence of early intervention to turn authorities round; sadly, we have also seen the consequences of allowing a situation to continue year after year without effective action. The problems confronted by areas such as Hackney and Walsall are a sad comment on the lack of a mature relationship between central and local government and an understanding of the need to take effective action against failure. That is our objective and purpose, based on the real world. When real problems come to light, it is better for the Government to build a proper relationship with local government than to take heavy-handed action too late.

I hope that the Liberal Democrats will recognise that the powers are a necessary safeguard, which we do not intend to use except in circumstances that are so serious that no realistic alternative is possible. That was what I said in evidence to the Select Committee and I made the same comment to local government as I do to this Committee. It would be irresponsible to remove the Government's ability to take action to prevent a serious deterioration in an already

unsatisfactory state of affairs in a local authority. We are building a good, new relationship with local government, based on responsibility and a shared concern to tackle and turn around the relatively small number of authorities in real difficulty whose failures, sadly, give the whole of local government a bad name. It is in all our interests to ensure that we succeed. I wholly reject the unrealistic thinking behind the attempt to remove clause 4(2).

Mr Paul Marsden (Shrewsbury & Atcham, Liberal Democrat)

Will the Minister cast his mind back to 1997? I agree that Ministers may require some reserve powers to deal with rogue councils. However, in 1997, before the general election, Labour's position on local government was that:

''The government has taken such massive central control over local government that civil servants in Whitehall now effectively set the budget for every single council in the country. We do not think this is right or sensible. It assumes that civil servants in Whitehall know the needs and circumstances of each area better than councillors elected by local people.''

Should not the Minister be trusting local councillors and local people? He is the one living in cloud cuckoo land.

Mr Nick Raynsford (Minister of State (Local and Regional Government), Office of the Deputy Prime Minister; Greenwich & Woolwich, Labour)

The hon. Gentleman is wrong. We have substantially increased the freedom of local government. We ended the restrictive capping regime that we inherited, we have increased grants to local government over the past six years by 25 per cent. in real terms, and we have removed a series of obligations and repressive measures that had been imposed on local government by central Government. In parallel, however, we have also said that we want a mature, new relationship with local government based on a commitment to deliver high-quality services locally and to maintain standards of community leadership

that every citizen has a right to expect from a local authority. That is the thrust of our White Paper. It is a deregulatory measure, but it also requires acceptance of the need for responsibility on all sides. We are proud to introduce it.

Amendment No. 31 is designed to introduce the condition that no borrowing limit may be imposed on a local authority below its actual level of borrowing. I have to tell the hon. Member for Runnymede and Weybridge that it is unnecessary. If an absolute figure were ever set for an authority below its present level, nothing would be achieved. The borrowing control is set out in clause 2(2), according to which an authority

''may not borrow money if doing so would result in a breach of . . . any limit for the time being applicable''.

Unless a loan breaches the limit when it is actually taken out, nothing can later make it unlawful. No element of retrospection applies, so the amendment is unnecessary and I hope that the hon. Gentleman will withdraw it.

Before I finish, I shall respond quickly to the hon. Members for Isle of Wight and for Poole, who spoke about powers to deal with national economic circumstances. The hon. Member for Poole argued that they were unnecessary and the hon. Member for Isle of Wight thought that they might be necessary, but wanted to know why the Government wanted them. The answer is a single word—prudence.

Further consideration adjourned.—[Mr. Woolas.]

Adjourned accordingly at nine minutes past Five o'clock till Tuesday 28 January at five minutes to Nine o'clock.