Clause 8 - Control of credit arrangements
Local Government Bill
11:00 am
Mr Andrew Turner (Isle of Wight, Conservative)
I, too, was mystified by the meaning of ''cost'' in the clause, largely for the reasons set out by my hon. Friend the Member for Runnymede and Weybridge. I was also slightly concerned by his alternative definition of the capital value of the assets made available, but I shall return to that in a moment.
The cost of the arrangement could have the meaning set out by my hon. Friend: the aggregate borrowing, plus the cost of interest and other repayments, plus the fees involved in setting up the arrangement; or it could refer merely to the fees in setting up the arrangement. I, too, would like to hear from the Minister which of those definitions he intends should be covered by ''cost'' on the three occasions on which it occurs in the clause.
My hon. Friend's alternative proposal suggests that borrowing by local authorities is designed to create an asset. On many occasions borrowing by local authorities is designed to pay for a liability, not to create an asset and certainly not necessarily to create an asset of a value equivalent to the amount of money borrowed.
Let me give you an example, Mr. Conway. If a local authority borrows money to build a house on a piece of reclaimed land, it is more than likely that the value of the house on the open market will be less than the aggregate cost of building the house and reclaiming the land. In other words, the asset's value is not equivalent to the sum borrowed, let alone the sum borrowed, plus the interest paid, plus the costs of the arrangement.
A second example might be for the construction of an ice rink, swimming pool or other facility. As many of us who have served on local authorities know, ice rinks, swimming pools and other facilities have huge maintenance costs. Sometimes local authorities have to pay the private sector to take these wretched facilities off their hands because the maintenance costs are so great. It cannot therefore be construed that the capital value of the asset made available under the arrangements is equivalent to the cost of making the arrangement or the value of the sum borrowed.
Then there is the cost of a coastal protection measure. A coastal protection measure has no intrinsic or asset value. It only has a value in terms of the amount of money spent on it. I would like to ask the Minister, in responding to the amendment, to clarify what is meant by ''cost'', which is the thrust of the amendment. I have been a little critical of my hon. Friend's alternative, but perhaps the Minister could do what my hon. Friend has valiantly tried to do. I believe an amendment is required.