Clause 4 - Imposition of borrowing limits
Local Government Bill
8:55 am
Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)
New clause 2 represents a much better approach than the Government's approach because it sets a much clearer description of the circumstances in which macro-economic reasons would trigger the Government's right to interfere in the borrowing of local authorities. As clause 4 stands, we do not know what those reasons might be, because subsection (1) says only that regulations will set guidelines for capping local authorities' borrowing for ''national economic reasons''.
''National economic reasons'' is a broad and vague term. We have had Ministers' assurances in the explanatory notes and in debates that that would be a long-stop and reserve power that would rarely be used, but we still do not know what the national economic reasons are. There has been no description or attempt to set criteria in debates, the explanatory notes or elsewhere, which seems odd. The term could cover many issues that are not necessarily relevant to borrowing. There may be economic reasons why the Government feel that they have to take some measures, but those economic reasons should be germane to the borrowing of local authorities.
That is why new clause 2 talks about the Government's own code for fiscal stability. It was provided for in the Finance Act 1998 and has been continually referred to in Budgets and pre-Budget reports. It sets out the objectives of fiscal policy and the rules by which those objectives will be met. In theory, they are binding on central Government, but, as Governments always do, they have given themselves an opt-out clause. However, the code is supposed to set the framework in which fiscal policy is to be delivered in the long term. For example, it requires the Treasury to make a long-term forecast of the fiscal position of UK plc and sets out whether the public finances are sustainable in different conditions. It has two rules that underpin the fiscal policy. There is the golden rule, which is that over the economic cycle the Government will borrow only to invest and not to fund current spending, and the sustainable investment rule, which relates to public sector net debt as a proportion of GDP.
My point is that the Government have an elaborate code and underpinning rules to direct their fiscal policy. A lot of analysis follows those rules, and it is logical that local authorities should fit into that framework. Their borrowing and fiscal actions must
be taken into account in the Government's determination of whether they are abiding by their rules and sticking to their code for fiscal stability.
New clause 2 would not use such broad, unspecified ''national economic reasons'' that do not relate to local authority borrowing, but instead take the Government's framework for fiscal policy and include local authorities' fiscal actions within it. I do not think that it is a particularly outrageous request from the Opposition for the Government to keep to their code for fiscal stability.