Mr Philip Hammond (Runnymede & Weybridge, Conservative)

I beg to move amendment No. 30, in

clause 5, page 3, line 8, after 'relates' insert

'and is reasonably expected to be received within that period.'.

This is a technical amendment. Clause 5 gives local authorities the power to make temporary borrowing arrangements for managing their in-year cash flow, which is a sensible provision. The limit for borrowing for such purposes is effectively any amount due to the authority within the period, which it has not yet received. A local authority's receivables at any given time will include sums of money that will in practice not be collected. Until the Minister tells us differently, I will assume that an in-year receivable will include housing revenue account arrears, council tax arrears from previous years and 100 per cent. of the council tax due in the current year. No authority collects 100 per cent. of its council tax and some have a lamentable record of collection.

If the clause is to achieve what it intends, the additional words in the amendment are required so that the limit would be set by reference to amounts receivable within the current period and reasonably expected to be received. For example, an authority that has historically collected 96 per cent. of the council tax due will be allowed to take into account only 96 per cent., not 100 per cent. That is a sensible way to approach borrowing for in-year cash-flow management purposes; it must be based on real, anticipated receipts, not nominally receivable amounts that in practice everyone understands will not be received in full. I hope that the Minister will accept the amendment or undertake to deal with the issue in another way.

Mr John Pugh (Southport, Liberal Democrat)

I have a technical query. The Bill's aim is to achieve prudential management. I agree with Aristotle that prudence is difficult to define and circumstantial. As it is defined in the Bill, prudence is setting and keeping to an authorised limit. Conservative Members argued in a previous debate that prudence sometimes consists of keeping clear of that limit because capital programmes can go wrong, mistakes can occur and it is always as well to have something in reserve. However, in temporary and exceptional circumstances it might be prudent to exceed that authorised limit.

All of us, including CIPFA, accept that the Bill's goal is to attain long-term prudence. The amendment seeks a little precision in the authorised limit, which will be a firm, almost mathematical calculation, defined by a relationship between capital and revenue. The revenue base will include what is in the accounts and the money due, and we should consider what that means. Money due is not necessarily what the authority will get, but what it is legally entitled to.

My inquiry relates to the real world of local authority finance. Can money that may, for example, be subject to a negotiable bond be included, as well as

money due that is on the books? In circumstances in which a capital project has failed and a bond is to be negotiated, it will be contested in the court and arrive during the course of the year. Can a local authority reasonably include that as money due? Conversely, if there are contestable legal liabilities in the year, which the treasurer does not think will become due but which might do so, would they be included? I argue that they would not, because in the prevailing circumstances there is a strong element of over-programming, allowance for slippage and so on in local authorities. When financial issues hinge on legal issues that may be debated during the financial year, will the money be included in the money-due or the money-owed category?

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

Clause 5 is a welcome and flexible provision to enable authorities to borrow temporarily when faced with deficits in income due to late payment of items including council tax, for example. To meet urgent commitments such as salaries, local authorities need to borrow short-term. The clause ensures that the authorities' borrowing limits in clauses 3 or 4 are increased by payments due to them in the financial year that have not yet been received.

The amendment would add an unwelcome restriction. To increase the borrowing limit, the payment would not only have to be due but reasonably expected to be received in the current year. That would create two problems: first, the expression ''reasonably expected'' is vague and would add speculation to the process, possibly exposing the authority to a risk of litigation, particularly if litigious members of the public wanted to challenge the authority's financial management.

Secondly, there are timing difficulties. A payment becoming due in late March but not expected until early April, in the next financial year, would fall outside the provision, yet it is precisely in such a situation that the temporary borrowing capacity is crucial. The amendment is not helpful and it would not be welcomed by local government.

The hon. Member for Runnymede and Weybridge referred to local authorities having a lamentable record on council tax collection. However, the evidence is that local authorities are improving their collection rate, and we are seeing significant improvement throughout the country, even in the authority that, by universal agreement, had the most lamentable record. One and a half years ago, the London borough of Hackney had a collection rate of about 66 per cent., but I am told that it is now at 80 per cent. That is still far too low, but it is going in the right direction, which is a general trend in local government. I hope that the hon. Gentleman will give credit to local authorities for improving their collection rate.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

I do not know what the Minister is waffling on about. I said that some local authorities have a lamentable council tax collection record. Frankly, I regard 80 per cent. as lamentable in the extreme, so there is not much to sing about in getting from 66 to 80 per cent. Other local authorities, including my own, have extremely good records, as

one would expect of a Conservative-controlled authority.

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

Like many other Labour authorities, my authority has an excellent collection rate, and we will not take any lessons from the Conservatives on that. I am sorry that I have got under the hon. Gentleman's skin this morning. I was making the point that in practice there has been demonstrable improvement in the collection rates, and even Hackney, which I openly said had a lamentable record, is improving. I do not deny that it has a long way to go, but it is moving in the right direction and should be welcomed.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

Will the Minister give way?

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

If the hon. Gentleman insists.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

I am sorry that the Minister is so churlish about giving way, but I want him to clarify something. Was I right in my assessment that a crude arrears of council tax or housing rents would be included in the amounts considered to be due in the period in calculating the borrowing limit? If so, the Government will be allowing local authorities cumulatively to borrow what they have failed to collect.

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

I was about to come on to the point about proper scrutiny and control of the use of the power to avoid abuse. Before I do so, I will refer to the contribution of the hon. Member for Southport. I understand his comments, but I hope that he will accept that we want to establish a flexible framework to assist local authorities to cope with the management of financial affairs without imposing unnecessarily restrictive provisions or too many details that could prove an obstacle to that flexibility.

Mr John Pugh (Southport, Liberal Democrat)

Would it be reasonable for a local authority treasurer to take into account money to which he thinks that he has a fair, but not yet certain, legal title?

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

That would be a decision for that local authority, after being advised by the treasurer, and it would be subject to audit. I hope that the authority would take a sensible and prudent decision in those circumstances, rather than expecting an answer from the Minister. As the hon. Gentleman will recognise, we want to devolve greater power and decision making to local authorities. I know that he supports that objective.

On the safeguards, accounting principles applicable to local authorities require debts to be reviewed regularly and charges to be made to the revenue account for any that are considered bad or doubtful. The budgetary duty in turn requires the charges to be reflected in council tax. Therefore, a failure of the debtor to pay the council does not create an open-ended entitlement to borrow under the power. I accept that an authority might overestimate the extent to which it would collect council tax in one year and borrow under the power slightly more than it would reasonably be entitled to do because of that. However, that would be corrected in the following year, and the

borrowing would be kept under close and continuous monitoring through the framework that we want to see in place for the prudent management of local authorities' financial affairs.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

I understand the Minister's comments, but there is no provision in the clause for estimating the percentage due to be collected. Let us take Hackney as an example. The Bill says that Hackney could borrow 100 per cent. of its due council tax receipts, even though experience tells it that it will collect only 80 per cent. I see nothing in the Bill to prevent that.

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

The hon. Gentleman is making a mountain out of a molehill. This is not a long-term borrowing facility. It is a short-term facility to enable authorities to manage their cash flows. When a local authority takes such a decision, its chief finance officer will advise it as to what is prudent. Any chief finance officer aware of the history of Hackney's collection rate of council tax will not advise it to assume collection of 100 per cent. That would be extremely imprudent and I am sure that the auditors would have some robust comments to make on any such recommendation. I am confident that no such recommendation would be made. In the light of that explanation, I hope that the hon. Gentleman will not press his amendment.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

I did not table this amendment with any aggressive intention. It was simply to clarify the issue. My perception is that in attempting to shoot down the amendment the Minister has pointed to a number of problems. I am sure he is right that a prudent local authority would take all those considerations into account, but in addressing the last clause he has invited us to look at the case of the maverick imprudent local authority. He used Hackney as an example, at least in its past incarnations. But there is a concern that an authority could use the short-term borrowing provision to borrow money that in practice it was not going to receive during the period. In effect, it would then be using borrowing to finance revenue expenditure, which is not the Government's intention.

I take the Minister's point about prudent accounting practice requiring the writing off and charging to revenue accounts of uncollected amounts. In the local authority's accounts those amounts will be charged to a revenue account, but I take it that that does not mean that simply because an amount has been charged to a revenue account it is no longer collectable and enforceable against the debtor. I would expect a prudent local authority to charge to a revenue account an amount that had not been collected during the reasonable period in which it was supposed to be collected, but at the same time to continue to pursue the debtor. In that sense it would remain an amount due to the authority even though it had made appropriate provision for it in the revenue accounts.

The Minister said that the term ''reasonably expected'' was vague and incapable of precise interpretation. I frequently say in Committee that I am not a lawyer and I shall now say that I am not an accountant, but I would have thought that the term

''reasonably expected'' was the type of phrase that accountants regularly had to deal with in deciding how properly to treat an amount; whether it was reasonably expected to be received. That is not a telling charge against the amendment as drafted.

I accept, however, that the Minister has made a better argument in dealing with receipts at the year-end, where he is right that some receipts would not be received within the period. I merely hoped that the Minister would take on board the issue underlying the amendment and seek to deal with it in another way. He has not shown any sign of being persuaded that there is an issue to address. I am not going to press the amendment for various reasons, including the defect in relation to year-end that the Minister has pointed out, but I hope that he will consider tightening the clause before Report stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5, as amended, ordered to stand part of the Bill.