Mr Win Griffiths (Bridgend, Labour)

I remind the Committee that with this we are taking the following amendments:

No. 34, in

clause 8, page 4, line 5, leave out 'cost of' and insert

'capital value of any additional assets made available under the arrangement as a result of'.

No. 35, in

clause 8, page 4, line 7, leave out from second 'the' to 'and' in line 8 and insert

'capital value of an asset'.

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

As I recall, I was addressing the remaining issues raised by the hon. Member for Runnymede and Weybridge (Mr. Hammond). He asked whether the word ''cost'', as the term used in clause 8(2), includes the financing costs of the arrangement, and as I said, it will not.

Accounting practices require assets to be recognised in the balance sheet initially at cost. For an asset acquired under a credit arrangement they will require the cost to be set at a value roughly equal to the amount that would have been paid up front. That may not be the same as the capital value, because the authority may have ownership of the asset only for a limited period, such as a lease. The wording in the clause follows accounting practices and ensures that financing costs are not included in the opening cost figure. The effect is that, in the case of traditional borrowing, interest costs do not score as part of the

cost, and in the case of a lease, service costs do not score either. In other words, there is a level playing field, which, I think, is the assurance that the hon. Gentleman sought.

What is captured in credit agreements will be basically the same as under the present system, except that it will rely largely on accounting definitions, rather than achieving the same effect through complex statutory definitions, as under the present system. I hope that that explanation is helpful, and I urge the hon. Gentleman to withdraw the amendment.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

That is exactly what I intend to do. The Under-Secretary has gone some way to reassure me that the Bill, combined with the regulations and the codes of proper accounting practices, will deliver the desired result.

As I have said in Standing Committees many hundreds of times, and will no doubt say many more hundreds of times, we would always prefer the Bill to be more explicit about such provisions. However, we all agree that it is best, wherever possible, to following standard accounting practices and to have the minimum number of departures from them. My interpretation of the Bill would have given more scope for such departures, but the Under-Secretary reassures me. I shall read his remarks carefully and allow others, who know much more about these matters than I do, to do so too. We want to make sure that we are satisfied, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

I beg to move amendment No. 36, in

clause 8, page 4, line 10, leave out subsection (4).

Mr Win Griffiths (Bridgend, Labour)

With this it will be convenient to discuss the following amendments:

No. 57, in

clause 8, page 4, line 11, at end insert—

'(5) Before making any regulations under subsection (3) or (4), the Secretary of State must consult the Chartered Institute of Public Finance and Accountancy and the Comptroller and Auditor General.'.

No. 58, in

clause 9, page 4, line 32, at end add—

'(5) Before making any regulations under subsection (3), the Secretary of State must consult the Chartered Institute of Public Finance and Accountancy and the Comptroller and Auditor General.'.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

I shall speak briefly to amendment No. 36. Amendments Nos. 57 and 58 stand in the name of the Liberal Democrats, and no doubt the hon. Member for Kingston and Surbiton (Mr. Davey) will say something about them.

Subsection (4) is the antithesis of freedom and flexibility—we find such subsections in many clauses—saying that after everything else has been settled:

''The Secretary of State may by regulations impose additional restrictions on the power of a local authority to enter into or vary credit arrangements.''

A lot of hard work has gone into determining how credit arrangements will be regulated, but at the end of the clause a subsection tells us that the whole thing was a waste of time because, whatever is in the Bill, the Secretary of State retains total and unfettered power to make additional regulations to undo or add to those arrangements. That means that the Government will effectively have the power to steer local authorities, by regulation, between different types of transaction.

More insidious than the Government's ability to make regulations or to use the provisions in the Bill is their implied power to exert their will to determine the behaviour of local authorities. There is no transparency in that. At least if the Government make a regulation, we will have the opportunity in this place to discuss it and, to some extent, to scrutinise it, and the world will be aware of it. However, if the Government merely contact local authorities, as they quite properly do all the time in their day-to-day dealings with them, to draw their attention to the fact that something that they propose to do would be frowned upon in Whitehall and that the Secretary of State has the reserve power under subsection (4), they will be able to influence, in a way that is not transparent, the behaviour of bodies that should be publicly accountable. As a matter of general principle, we should prefer such catch-all powers not to be included in a clause such as this.

This issue is not merely theoretical; the Under-Secretary has already circulated draft regulation 7, which is to be laid under the powers given in subsection (4). The effect of that regulation is highly controversial and significant because it will exclude public finance initiative contracts from the prohibition on the use of credit for services, which will be dealt with in secondary legislation. Whatever we think about that regulation is not the point; the point is that the power could be used to do something equally significant by secondary legislation, so I should prefer subsection (4) to be removed from the Bill.

For some strange reason, it says in my notes that the Liberal Democrats would also like that to happen. It is because they have signed the amendment, which is always a pretty fair indication of support. [Interruption.] As the Minister for Local Government and the Regions observes, perhaps that is not so apparent in the case of the Liberal Democrats. On this occasion, we will take them at face value, and I look forward to hearing what the hon. Member for Kingston and Surbiton has to say about amendments Nos. 57 and 58.

Mr Edward Davey (Kingston & Surbiton, Liberal Democrat)

I signed my name to the amendment tabled by the hon. Gentleman because it is right, as he demonstrated in his remarks. In this Bill and many others the Government legislate in detail, setting out all the powers that they want to give themselves, and we have long, detailed debates about them. Then we get to the end of a clause, a part or the whole Bill, and we find that the Government have a catch-all, get-out clause that enables them to do anything that they want, thus negating all the time and effort that we have spent

scrutinising the legislation. It is bad practice. Other Governments have done it, but that does not make it right. If the Government want to ensure that the powers that they take are properly scrutinised by a democratic body, they should not allow such catch-all provisions to be inserted into legislation.

If the Government set out for the Committee why they want the powers, perhaps we can judge them in detail. Then, on Report, rather than have a catch-all subsection, we could put the Government's intentions on the face of the Bill. Perhaps they already have in mind some instances when they would need more regulatory powers for credit arrangements. Let us have those in the Bill; let us not make local authorities second-guess what new regulation the Minister will next come up with.

On amendments Nos. 57 and 58, the Government often take the power to regulate, saying that they are not sure how the regulations will turn out. The Bill should place a statutory requirement on the Government to consult other people outside this place. The Chartered Institute of Public Finance and Accountancy is already mentioned in regulations and would be a sensible organisation to consult on the regulations under discussion. We also want to add that the Comptroller and Auditor General must be consulted.

This morning, the Minister suggested that our proposal was rather odd and asked why we did not include the Audit Commission, and I can understand why he made that suggestion. I mean no disregard to Sir Andrew Foster and his team at the commission, but the CAG is used to dealing with such definitions with respect to central Government accounting, and is therefore the correct person. If the Minister accepts the principle, but is against the inclusion of the CAG, we will be more than happy for him to table an amendment to ensure consultation with CIPFA and the Audit Commission. That is not the issue of principle for us; the key issue is consultation.

My hon. Friend the Member for Southport (Dr. Pugh) wishes to make some additional remarks on the subject, so I will not take any more of the Committee's time save to say that in this clause and clause 9, to which we have tabled amendment No. 58, it is right that the Government should not have unfettered powers and that they should have to consult.

Mr John Pugh (Southport, Liberal Democrat)

I will speak primarily to amendment No. 58. Hon. Members will already have noted that the Bill contains two catch-all clauses against which amendments Nos. 57 and 58 are directed—clauses 8(4) and 9(3). One allows the Government to vary credit arrangements in whatever way they wish. The other appears to allow them to define capital receipts however they will.

A cynic might suggest that that is an attempt to put a provision in legislation that will allow the Government to ride roughshod over local authority autonomy and to micromanage local authority affairs. A cynic might suggest that, but the Government will undoubtedly tell us that those are simply necessary provisions included for technical reasons to reserve to the Government powers that may be required to cope

with unexpected loopholes, and unanticipated events of the sort that Committee members relish in bringing to their attention. I suppose that the Government could grudgingly say that Opposition Members are expecting two incompatible things—they expect the Government to specify every available loophole, while they seem to be trying to deny the Government any power to manoeuvre should all the loopholes not be anticipated.

Amendments Nos. 57 and 58 begrudgingly acknowledge that the Government will have some sort of reserve power and try to ensure that they act for the right reasons in the right way. The amendments do not deny Governments powers outright that they may have to cater for to deal with loopholes that even this Committee cannot dream up.

The amendments suggest that there should be consultation between CIPFA and the Comptroller and Auditor General and organisations of such ilk, basically because that would to some extent alloy the paranoia of local government about what the Government's intentions here might be; or rather, not paranoia but justified suspicion and concern on the part of local government, because it has from time to time been sorely abused by central Government and it is being tinkered with all the time.

Accepting the involvement of an organisation such as CIPFA, which has the confidence of local authorities and the Government and a grasp of the realities of local authority finance that exceeds that of the National Audit Office and other such bodies, could be a good way to persuade local government to take the leap of faith for which the Minister asks time and again.

The Minister's intentions have been clear—he has signalled them from the beginning of the passage of this legislation—and accepting amendments Nos. 57 and 58 will make people think not simply that the Minister has those intentions but that he sincerely believes in them and is prepared to put one or two guarantees down.

Mr Desmond Swayne (New Forest West, Conservative)

I do not think that this will take long. The enormity of what the Government are trying to get away with in this catch-all subsection at the end of the clause is so obvious that it does not take a great deal to expose it. Indeed, I noticed in the past few moments as we have been discussing it that even Labour Committee members, whose noses have hitherto been buried in the Bill and the briefings that they have been receiving from third parties, have begun to perk up and listen to the proceedings.

Any Bill that this Government propose always contains an Attila the Hun clause. There are several contenders in the Bill and clause 8 is certainly one of them. The Government will be able to do whatever they like and make whatever arrangements they care to. If they think that they are going to get a free run on the clause, the Minister will have to do two things. First, he will have to explain exactly the situations in which the powers will be used and how. Secondly, and more importantly, if he can articulate those situations

and the circumstances, he needs to say why he is not able to put them on the face of the Bill but has to reserve the powers in such a catch-all way.

Mr Andrew Turner (Isle of Wight, Conservative)

I echo the remarks of my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond). I listened with some care to the remarks of the hon. Members for Kingston and Surbiton and for Stockport—[Interruption.] I apologise; it was the hon. Member for Southport—which is much sunnier than Stockport as it is further from Manchester—who said that the powers would enable the Government to vary capital arrangements in clause 9 and credit arrangements in clause 8 ''however they will''. Of course, they do not; the powers enable the Secretary of State to impose additional restrictions. That is what is so curious about what the Government put forward as a liberalising measure—the Secretary of State will have free range to restrict the freedom of manoeuvre of local authorities.

In other recent Bills and Acts of Parliament, such as the Education Act 2002—I served on the Committee that considered that legislation—the Government have been much more generous in their interpretation of the word ''liberalising''. In the 2002 Act, they interpreted the word to allow the Secretary of State to vary any enactment—not to impose additional restrictions, but to vary either by the imposition or the reduction of restrictions. It is extraordinary that the definition of ''liberalising'' in Sanctuary buildings seems to be entirely different from the definition that is accepted in the old Admiralty building. I wonder why. What is it about the people who write local government law that makes them even more restrictive than those who write education law?

Lest the Committee should misunderstand me, I am not praising the 2000 Act unduly highly, because it gave the Secretary of State powers to restrict schools' freedom of manoeuvre. Even when they wanted the freedom to innovate, the Secretary of State had to say yes or no, but at least he had the opportunity to remove the restrictions imposed by regulation. That is not at all apparent in these measures.

I am surprised, but glad, that the hon. Member for Kingston and Surbiton has put his name to amendment No. 36, but I should have thought that he could do better with regard to amendments Nos. 57 and 58. Perhaps he will tell me that the Secretary of State has to consult local authorities over his intention to make such amendments as are provided for here, and that it is not necessary to include that in the Bill. That may be the case, but could not the hon. Gentleman have retained the words ''impose additional restrictions'' while perhaps adding ''or remove existing restrictions'' at the end? That would have been a liberalising measure, but clearly that is too liberal for the Government and too liberal even for the Liberal Democrats.

Mr Edward Davey (Kingston & Surbiton, Liberal Democrat)

The Conservatives did not table anything.

Mr Andrew Turner (Isle of Wight, Conservative)

The hon. Gentleman forgets that he put his name to the proposal that we tabled, and I very much hope that our amendment goes through.

Mr Paul Goodman (Wycombe, Conservative)

Might I be of assistance to the Minister? If I understand correctly the argument put by my hon. Friend the Member for Runnymede and Weybridge and the hon. Member for Kingston and Surbiton, they are making the case that the clause sets out a series of instructions, which are intended to be fairly precise, regarding credit arrangements, and that subsection (4) is essentially a catch-all measure that uses the vague expression ''additional restrictions''. On the face of it, that appears to be a very broad form of words. I am sure that the hon. Gentleman and my hon. Friend were correct to say that more information on those additional restrictions should be in the Bill.

Perhaps the Minister will come some way towards reassuring my hon. Friend and the Liberal Democrat spokesman—although, of course, I cannot speak for him—by telling us more about what those additional restrictions might be. What are they? Under what circumstances would they be exercised? What scrutiny might they be open to? So doing might do a little to satisfy me and my hon. Friends, although I remain a little sceptical about that.

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

Amendment No. 36 would remove clause 8(4), which enables regulations to be made to impose restrictions on the power to enter into credit arrangements. In the draft regulations that we have made available to the Committee—this addresses many points raised by Opposition Members—regulation 7 gives ample indication of how we propose to use the power. Primarily, we want to preserve the prohibition in current legislation on using credit arrangements for purposes other than the acquisition of capital assets. The important point is that credit, like borrowing, should be used to meet capital needs, not to pay for services and running costs. We seek to impose such restrictions through subsection (4).

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

The Minister says that regulation 7 gives an adequate indication of how the Government intend to use the power, but, of course, that power is permissive. We all understand what regulation 7 would do—we have already had a debate on that, so I shall not go into it again—but I presume that he is not offering to limit the Secretary of State's power under subsection (4). The concern being expressed from all parties on this side of the Committee is that the Secretary of State effectively would have unlimited power to do anything, which might be different from what draft regulation 7 intends.

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

I am not proposing to say that that is the only purpose for which we would use the provision. In the world of accounting, apparently, things change incrementally but fairly regularly. From time to time, it is required that the regulations governing those arrangements should also change. Rather than simply put everything in primary legislation when aspects of accounting need to change, we seek through the simplification process represented by clauses 7 and 8 to use the provision as a means to ensure a certain degree of flexibility in how the rules govern those accounting arrangements. We see our main purpose as prohibiting the use of credit,

as we would with borrowing, to pay for services and running costs—the consumption of that money.

The restrictions appear in primary legislation, but it is more appropriate to deal with them in regulations, simply because exemptions may be more flexibly introduced.

Mr John Pugh (Southport, Liberal Democrat)

The Minister uses the word ''flexibility''. What is the difference between a clause that allows unlimited flexibility and a catch-all clause? Does what he has just said to an extent justify the accusation made about a particular clause—that it is in fact a catch-all? Although he would prefer not to use that term, there is no semantic difference between what he is saying and what we are saying about that particular clause, is there?

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

I simply draw the hon. Gentleman's attention to the subsection, which is clear about what it intends to do. The main exemption, as the draft regulation shows, will be in relation to private finance initiative contracts, which are hybrid. They provide capital assets and services, and the regulations will ensure that PFI contracts are not inhibited by the restriction on the use of credit arrangements.

To elaborate on the issues set out in draft regulation 7 and the accompanying commentary, I should say that PFI contracts will not automatically count as credit arrangements under the new system—that will happen only when they score on the authority's balance sheet. If they do, however, the regulation will provide the necessary safeguard. That is the purpose for seeking to foresee how the subsection might be used in such circumstances.

Amendments Nos. 57 and 58 would require specific consultation with CIPFA, the Comptroller and Auditor General and the National Audit Office. I believe that they are unnecessary. The Government will, of course, fully consult all relevant bodies as appropriate whenever we make such changes. Indeed, that is one of the reasonable requirements that fall on those in government.

Mr Andrew Turner (Isle of Wight, Conservative)

Does ''all relevant bodies'' include not only all local authority associations and bodies purporting to represent local authorities, but all local authorities themselves?

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

It could well do. That is precisely the point that I am highlighting in suggesting that the Committee reject those amendments. To define two particular persons or bodies as a limited list rather than perhaps allow for wider consultation is a topsy-turvy way to consult. There are plenty of provisions throughout the Bill and throughout other legislation relating to where consultations would be appropriate and reasonable. I do not believe that it is necessary in drawing up good statute to specify every single consultee at every single opportunity. For those reasons, I urge the Committee to reject the amendments.

Mr Andrew Turner (Isle of Wight, Conservative)

The Minister appears to be saying that it is not necessary to specify two consultees, on the ground that that might imply that other consultees or classes of consultee need not be consulted. Yet at the same time he is refusing to say that every local

authority, for example, shall be consulted. He says that they may be consulted or that it may be appropriate to consult them, but he is not saying that they will be consulted. That leaves a huge gap into which all manner of consultation arrangements may fall, none of which is satisfactory to local authorities.

Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)

I understand the sentiments behind the hon. Gentleman's point. We do not know what circumstances may arise, so I cannot say what issues may require in-depth consultation and what may simply require consultation with representative bodies, such as the Local Government Association. That may suffice in certain circumstances. All that I am saying is that it is wrong in principle to specify a definitive list of consultees to the exclusion of others. That sends a message that some consultees are more important than others, which is not good for harmony and good will in the local government community. There are good reasons why such a specifically bureaucratic provision is not required in this clause, and I urge the hon. Member for Runnymede and Weybridge to withdraw his amendment.

Mr Philip Hammond (Runnymede & Weybridge, Conservative)

The Under-Secretary has not addressed the central point, which is that the subsection gives more power, not less, to the Secretary of State. We have seen this trend in Bill after Bill during Standing Committee scrutiny, and unless and until the arrangements for scrutinising and debating regulations are improved, so that the increasing part of our body of law which is dealt with in secondary legislation is properly scrutinised, we will have to go on resisting the Government's inclination to include more and more sweeping regulation-making powers in Bills. I must therefore urge my hon. Friends to vote for the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 9, Noes 14.