Mr Robert Syms (Poole, Conservative)

The explanatory notes make it clear that the clause deals with local authority pension funds, and there is a separate regime for dealing with that. Subsection (1)(b) says that a local authority can borrow from a pension fund on a temporary basis. Could the Minister say a little more about that because I did not appreciate that local authorities could borrow from their pension funds? Could he define ''temporary''? Is it days, weeks or months? For what purpose would a local authority borrow from its pension fund?

Mr Desmond Swayne (New Forest West, Conservative)

Before my hon. Friend concludes, may I, through him, ask the Minister to tell us how much this is practised at the moment? What order of funds is borrowed in this way?

Mr Robert Syms (Poole, Conservative)

This is a small point. The Minister may wish to write to members of the Committee to set out the situation. I would be generally interested to see how often it occurs. Is it purely a housekeeping measure or is there a general application? The subsection reads:

''the temporary use by a local authority of money forming part of an external fund, if not for a purpose of the fund, shall be treated as borrowing by the authority''.

How often is money borrowed from pension funds and how is ''temporary'' defined?

Mr John Pugh (Southport, Liberal Democrat)

I should like some clarification about the phrase ''external fund''. I am familiar with arrangements where local authorities act as trustees for organisations working in the regeneration and

renewal area. In effect they are not simply trustees but co-funders of a scheme. When I initially read the clause I thought that the phrase ''external fund'' embraced such factors. I now understand that it does not and that it is meant exclusively to embrace pension funds and the like. But the definition of external funds seems inexact, or in fact unformulated, in the legislation. Will the Minister consider the necessity of tightening it to exclude other forms of external finance to local authorities?

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

Members of the Committee who have spoken on the matter have raised some reasonable points. As I understand it, the purpose of the clause is to keep local authorities' superannuation funds' capital controls ''as now'', as it says in the explanatory notes. Perhaps the Minister will confirm that there is nothing new in the safeguards, unless in fact there is. My hon. Friend the Member for Poole (Mr. Syms) mentioned the problem of the superannuation fund borrowing from the local authority. I wonder whether he read, at clause 17(1)(c):

''entry into a credit arrangement by a local authority''.

It would be useful for the Committee to know whether these are normal arrangements and whether that has ever occurred.

Finally, will the Minister clarify what is meant in subsection (2)(b) by

''a trust fund of which the authority is a trustee''?

Is that a normal pension fund arrangement or does the provision envisage other arrangements that may be being used to get around current financial controls?

Mr Andrew Turner (Isle of Wight, Conservative)

I wonder whether that provision also applies to funds such as charities of which the local authority may be a trustee. My local authority was the trustee for a property called Northwood house in Cowes. It reached the point of selling it before it discovered that it was a trustee and therefore not allowed to do so. Fortunately that situation was reversed, but this seems an opportunity to plunder all sorts of funds.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

My hon. Friend has opened up a Pandora's box. We are getting into the fiduciary role of a trustee. I wonder why or where it would occur that a local authority would be a trustee of anything, let alone that the superannuation fund would enter into a trust deed with another party. Perhaps the Minister could clarify that point and then we might return to it.

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

The questions came thick and fast. Opposition Members should read the clause in the context of chapter 1, which is about the prudential regime and the changes in the capital regime we are putting in place. Clause 17 deals with external funds—which I will come to in a moment—but simply preserves the existing arrangements under the present system.

The main example is pension funds, which will be treated outside the normal capital controls but governed by their own regulations and arrangements. Those funds are ring-fenced and subject to separate legislation. In response to the hon. Member for Cotswold (Mr. Clifton-Brown), the provision would also cover other funds such as charitable funds for

educational or recreational purposes or property held in trust for people in the care of authorities.

The clause ensures that transactions such as expenditure, borrowing and investment undertaken for the purposes of such funds are outside the scope of the provisions in chapter 1. The hon. Member for Poole asked me to clarify the meaning of ''temporary'' in subsection (1)(b). We covered a lot of that ground under clause 5 and the meaning is largely the same; in other words, the money would have to be repaid within the financial year.

The hon. Member for New Forest, West (Mr. Swayne) asked how much the temporary facility is used across the country. I cannot have that information to hand, not least because so many funds and authorities are concerned. I suspect that the answer could be discovered only at disproportionate cost, but I will ask officials to look further into the matter. If an answer is readily to hand I shall supply it to the hon. Gentleman in due course.

Mr Geoffrey Clifton-Brown (Cotswold, Conservative)

The Minister has given a reasonable explanation of what the clause is about, but could he give the Committee some examples of where problems have arisen that have generated the need for the clause? Could he also tell us what the clause gives the Government extra powers to do that is not already enshrined in other regulations?

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

I can. The provision concerns the prudential borrowing regime that we are seeking to establish. In ensuring that a local authority is able to make its own assessment of how affordable its borrowing commitments are, we are saying that external funds and pension funds should not be classed as part of that, even though in their normal course of activities they would involve capital transactions. The clause concerns the normal affordability of capital and borrowing for a local authority. That is why the existing arrangements will continue in clause 17. The existing system works well and we want that to continue, so it is necessary for us to make that clear in the Bill.

Question put and agreed to.

Clause 17 ordered to stand part of the Bill.