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Further Provision as to Future

Orders of the Day — Local Government Finance Bill – in the House of Commons at 6:17 pm on 26th January 1987.

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Photo of Mr Terry Davis Mr Terry Davis , Birmingham, Hodge Hill 6:17 pm, 26th January 1987

I beg to move amendment No. 87, in page 5, line 9, after 'years', insert 'unless the accounts for the intermediate year were certified by the auditors for the local authority before 16th December 1986'.

Before we can consider amendment No. 87, we need to consider clause 5 because this is the first debate that we have had on this clause. But before we consider clause 5, we must look back at clause 3, which we have already considered. Clause 3 provides for the definition of relevant and total expenditure for the year 1987–88 and for subsequent years. As a result of clause 5, the same definition is to apply, after the passing of the Bill for the years 1983–84 to 1986–87. These past years are described as the "intermediate years".

The amendment would benefit the city of Birmingham council. To the best of my knowledge, it would benefit only the city of Birmingham. It is designed to benefit Birmingham specifically in respect of expenditure for 1984–85, for which the accounts have already been audited and certified by the auditors. On Second Reading, the Secretary of State referred to what I would describe as the Birmingham problem. In response to my intervention, he said: Birmingham council moved a sum of money which it did not have into a special fund, and at a later stage it moved that money back into the rate fund, thereby claiming grant."—[Official Report, 12 January 1987; Vol. 108, c. 45.] Later, in response to my hon. Friend the Member for Blackburn (Mr. Straw), the Secretary of State went on to say, again in relation to Birmingham: But if there were no funds and the funds that were shifted did not exist, then I am sure that the hon. Gentleman would be the first to agree with me that that was a fiddle."—[Official Report, 12 January 1987; Vol. 108, c. 104.] It was clear that the Secretary of State believed that Birmingham had made a paper transaction involving money that did not exist. I was especially concerned by his reference to "a fiddle" and discussed the matter with the city treasurer immediately after Second Reading and on several other occasions. The present city treasurer was not the treasurer in Birmingham at the time of the transaction in 1984–85, but he assures me that there is no question of the council cheating. Indeed, he has authorised me to say on his behalf that he will give a categoric assurance that nothing untoward or underhand was done by the city of Birmingham in 1984–85 in its handling of its accounts.

On 15 January, the city treasurer, Mr. Farrar, wrote to the under-secretary in charge of local government finance policy in the Department of the Environment, Mr. Brearley, to make similar comments to him, and through him to the Secretary of State. Mr. Farrar said: Comments made by the Secretary of State during the course of the second reading debate on the Bill, however, indicate that he is under a basic misconception as to Birmingham's position … It is not right to suggest as the Secretary of State seems to do … that Birmingham's fund contribution in 1984–85 equal to the rate fund deficit 'did not exist'. As the city treasurer explained to Mr. Brearley, the city council operates, like all local government, on the basis of receipts and payments during a financial year. Unlike central Government, year end accounts are drawn up on an income and expenditure basis, including accruals for debtors and creditors. It follows that a year end deficit does not automatically mean a cash deficit. I repeat that there was no question of the city transferring money that it did not have. The money was in its account. But as we can see from reports from the former city treasurer—Mr. Sabin, who has left to become chief executive of Kent county council—the city of Birmingham was under-spending considerably compared with its budgeted expenditure for 1984–85, so he suggested to the council that a sum equivalent to the underspend should be transferred to a special fund to be called the supply of goods and services fund.

There was some correspondence about the transfer while the city's accounts were being audited—[Interruption.] The Secretary of State is making noises from a sedentary position. No doubt he is agreeing that there was some correspondence, of which he has copies. There was nothing underhand about the way in which the city treasurer and the council, with the agreement of Conservative and Labour councillors, behaved in this matter. They have hidden nothing from the Government. It is the Government who are behaving deplorably and deserve to be criticised.

There was some correspondence between the Audit Commission and the city's auditors, Price Waterhouse. I have a copy of a letter, which has also been provided to the Secretary of State, dated 31 January 1986 from Mr. I. M. Pickwell of the Audit Commission to Mr. J. Layton of Price Waterhouse. Mr. Pickwell said that he had some doubts whether the transfer could be regarded as legitimate expenditure. He said: Underlying these thoughts of course is my own view that a local authority has a basic duty to fix a balanced budget for the year and to seek to conduct its business so that it remains 'in balance'. The city's solicitor wrote to Price Waterhouse with regard to this point and explained that there was no question of the city council being unable to finance its end of year deficit without recourse to borrowing. It did not need to borrow money because it had cash. He explained that the city had underspent and that it had transferred an equivalent sum to a special fund. The same practice had occurred the previous year.

On the basis of that correspondence, Price Waterhouse wrote to Mr. Pickwell of the Audit Commission saying: In certain circumstances you may judge a transfer to a fund to be unreasonable when, for example, a transfer should only be financed by way of unauthorised borrowing, but we have no evidence to justify these comments in connection with the City's position. In his letter, the city's solicitor also examined the suggestion that the year end deficit had occurred as a result of the transfer. He told Price Waterhouse: It is wrong to assume a causal link between the decision to make the fund contribution and the end of year deficit. The City Treasurer reported to the Finance and Management Committee on 10th April 1985 that the deficit arose not from overspending the 1984–85 budget but from a combination of factors, the most significant being block grant and rate proceed losses in 1984–85 and previous years. The deficit arose because of accounting adjustments, not because of the way in which the council had conducted its affairs.

After examining this matter and the books, Price Waterhouse wrote again to the Audit Commission on 21 March, saying: We have examined the legislation and whilst tenable arguments exist for your reservations, on balance, we tend to favour the views put forward by the City. We take this view since it seems to us that the City's discretion to create funds is unfettered. That was on 21 March—six months before the Secretary of State said that he began to have doubts about the legality of the way in which he proposed to treat council expenditure. On 16 May 1986, Mr. Layton of Price Waterhouse told the Department of the Environment: We have considered this issue in some detail and have concluded that the contribution is a lawful charge on the City's accounts and its effect has been properly shown on the face of the grant claim. That correspondence shows that Birmingham council acted honourably and above board in these matters. The transfer to a special fund had occurred previously. In 1983–84, the then Conservative-controlled city council had transferred an even larger amount to a special fund described as the special projects repairs and renewals fund. It follows that this practice was not abnormal. It was not invented for the 1984–85 budget and, in the face of the auditor's certificate for that year, the Secretary of State is wrong to try to revise the amount and to insist on removing £8 million from the city of Birmingham.

This is not just a case of accounting practice. On Second Reading, the Under-Secretary of State for Scotland mentioned the point. He said: On examining our Scottish practices in the light of the problems which have emerged in England and Wales, we discovered that we have counted as expenditure transfers between the general rate fund and special funds in assessing authorities' expenditure for the purpose of imposing grant penalties. According to the system we operate"— that is, the system in Scotland—

we would also have been prepared to count such transfers as expenditure had they occurred in the accounts of authorities for whom we were proposing a rate reduction."—[Official Report, 12 January 1987; Vol. 108, c. 109.] We therefore have evidence from the auditors and from the Government that the council's actions were not abnormal, were not an underhanded method of cheating and were not, as the Secretary of State claimed on Second Reading, "a fiddle". They were above board, honest and open, and the accounts were certified by the auditors.

We have restricted our amendment to Birmingham because the city's accounts were audited and certified before the Secretary of State's announcement in the House on 16 December. We are not trying to open a loophole that other councils could exploit or that Birmingham could exploit in the future. We are concentrating entirely on 1984–85, which is an important year because the Secretary of State's decision, as contained in the Bill and which he communicated to the city council, will mean that the city will lose £8 million, despite the fact that it made the decision above board and with the agreement of the Conservative and Labour parties on the council.

In our view, the entire Bill is unjustified, but this aspect of the Secretary of State's behaviour is totally unjustified. I urge him, even at this late stage, to accept the amendment and to restore the £8 million to the city of Birmingham.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury 6:30 pm, 26th January 1987

I am grateful to the hon. Member for Birmingham, Hodge Hill (Mr. Davis) for setting out the case clearly. The matter is complicated, so I am sure that the Committee will bear with me if I give a fairly long. careful and detailed answer. I hope to convince the House that no injustice is being done and that everything is as it should be.

First, I shall say a few words about the amendment, not in any sense to rest on my case that it is defective, which it is, but just to dispose of that point before we come to the substance of the Birmingham matter.

The amendment relates to the years 1983–84 to 1986–87 in England and 1984–85 to 1986–87 in Wales. These are the years in respect of which we intend to make further supplementary reports. At the outset I should make one point clear. All authorities have known that for these years further supplementary reports are intended and they have therefore been aware that the amounts of block grant payable for those years is likely to change.

The amendment would have the effect that the definition of relevant and total expenditure in clause 5 would not apply to authorities whose accounts for any one of the intermediate years had been certified by their auditors before 16 December 1986 for that year. This would mean that in practice it would be impossible to make another supplementary report for any year for which one authority had had its accounts certified by the auditors. This is simply not sensible and I recommend that the amendment be not made. I shall not rest further on that other than to say that that is not the way to achieve what the hon. Member for Hodge Hill seeks to achieve.

The amendment is misconceived also as a device to help Birmingham and the 12 other authorities that may have engaged in what is known as deficit financing. Auditors are responsible for certifying that the accounts are correct. I have a totally different responsibility. I have a responsibility to the House of Commons and to the other authorities because block grant is close ended. My responsibility is to administer the rate support grant equitably and in accordance with current legislation, principally our old friend the 1980 Act. Those two responsibilities are quite different. Birmingham and the other local authorities appear to have—I have not reached any final view about this because we are still trying to get full details—

Photo of Mr Robin Corbett Mr Robin Corbett Opposition Whip (Commons)

Is the Secretary of State saying that auditors, whether Price Waterhouse or anyone else, act under no legal constraints? Is he saying that they simply have to say "These are correct"? That surely cannot be the position.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

Auditors have one clearly defined function and they have their own body of law which governs what they should do. I operate in a totally different area. Under the 1980 Act, I am responsible to Parliament for administering the rate support grant system. If I administer it wrongly or unfairly I can be challenged in court by the other authorities that will suffer. Just because an auditor approves or disapproves of something, it does not follow that I pay or do not pay grant as a result. I must pay grant according to the rate support grant law, not according to what the auditor says.

In 1984–85, Birmingham created its supply of goods and services fund, which the hon. Member for Hodge Hill mentioned, and contributed £15,545,000 from its general rate fund to the new fund. By making this contribution, its rate fund revenue account ended the year with a £7,450,980 deficit; that is, about half the money was there, but the other half was not.

Had Birmingham contributed only half of its general rate fund, that is about £7·5 million, to this fund, we estimate that it would not have incurred a deficit and that its total expenditure would have been nearly £8 million lower. Such a transaction would not cause concern for rate support grant purposes.

In 1984–85, Birmingham was on a positive marginal rate of grant, so the higher its total expenditure the more block grant it received. Contributions to special funds add to total expenditure and an extra £8 million would result in a gain to the city of about £0·4 million of block grant for that year.

In 1985–86, Birmingham was on a negative marginal rate of grant. By reducing total expenditure by £8 million, it would gain about £17·3 million in block grant. Taking the two years together, therefore, these transactions imply a block grant gain of about £17·7 million, largely representing reduced holdback and therefore at the expense of the Exchequer.

The question for me is, should I pay this grant? First, I must make it clear that I am not in a position to take a final view on the matter today, statutorily or otherwise. The city council may wish to make further representations. I wish to consider what other councils in a similar position say to me. In short, I retain an open mind. However, I can give an indication of my preliminary view in the light of the papers that Birmingham has sent to me. Those papers make the following matters clear.

First, the council took a decision to put a certain sum into a special fund knowing that that would create a deficit on the general rate fund. It did that to gain an increased entitlement to block grant.

Secondly, the Audit Commission, when asked about the proposed action, expressed considerable reservations, as the hon. Member for Hodge Hill will know, having seen the correspondence, and suggested that the city council's auditors draw it to the attention of my Department.

Thirdly, although the auditors took the view that the transaction was lawful, they agreed to draw it to the attention of my Department to consider the rate support grant implications. They did that in the letter of 16 May 1986.

The issue this practice raises is whether it is right and equitable that I, as Secretary of State, should agree to pay grant on figures for total expenditure affected by this practice. Deficit financing is a game that any authority can play. It requires no money. Are the Opposition really suggesting that the distribution of grant should be at the whim of authorities which choose to adopt this practice to any extent they please?

If Birmingham had run up as a deficit not £8 million but £80 million or even £800 million, the consequences in the grant that it would have attracted would have been infinitely greater. Hon. Members will agree that it cannot be right that grant should be obtained simply by this method.

Photo of Clare Short Clare Short , Birmingham, Ladywood

The Secretary of State said that the question was whether it was right or equitable for Birmingham and other authorities to have done that. That is not the question. The question tonight is whether it is right for him to take powers to change the law retrospectively. The debate is not about what we all think is moral, right and fair in terms of local government finance. It is about retrospection in legislation.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I am coming to that point. If the hon. Member for Birmingham, Ladywood (Ms. Short) will listen, I will answer that point fully. Some hon. Members suggested, as she did, that I might be taking action against Birmingham by sheltering behind powers in this Local Government Finance Bill which I did not previously have. That is not the case. I do not wish to traduce her, but there seemed to be an acceptance in what the hon. Member for Ladywood said that there was perhaps some justification for me to look at this practice with considerable concern.

Any hon. Member may intervene if he thinks that I have not convinced him that to run up a deficit on one account to put it in and out of a special account might be an unfair way of getting block grant at the expense of other authorities.

Photo of Clare Short Clare Short , Birmingham, Ladywood

I wish to put it on record that it is my view, having considered all the details, that there was nothing dishonourable or wrong in what Birmingham did. It is the duty of Birmingham to maximise the sum that it can obtain from central Government to provide for the needs and the services of Birmingham. The Secretary of State must not introduce any suggestion of fiddling. There was no such inference to be drawn from my previous remarks.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I merely implied that I do not think that the Committee would consider that I should pay grant in the circumstances that I have outlined. I think that the circumstances are as I have described them, but I shall not be sure of that until all the facts are before me.

Photo of Mr Terry Davis Mr Terry Davis , Birmingham, Hodge Hill

The right hon. Gentleman is being fair in the way in which he is approaching the comments of my hon. Friends. He is putting an emphasis on motivation and suggesting that the city council decided to maximise grant and obtained money that would not otherwise have been made available to it. Has he read the report of the city treasurer to the finance and management committee of 28 January 1985, which sets out the reasons for the city treasurer's recommendation that a special fund should be created?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

Without checking, I am not sure whether I have read that letter. I have read all the correspondence that was sent to me. I cannot check the date of the letter—

Photo of Mr Terry Davis Mr Terry Davis , Birmingham, Hodge Hill

It is a report, not a letter.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I have read everything that was sent to me. If the report was sent to me, I have read it. Obviously I cannot remember the date of every letter and report. It appeared from the correspondence that the city council acted deliberately. It realised that it would gain more block grant by acting in that way. There is nothing wrong in that and I am not saying that the council was wrong. The Committee has to consider whether it would be right—

Photo of Mr Robin Corbett Mr Robin Corbett Opposition Whip (Commons)

Is the right hon. Gentleman saying that it acted illegally?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

It was not an illegal act. The Committee has to decide whether it would be right for me to pay block grant on the transaction. Birmingham can try every tactic that it likes but I have to accept only that which other authorities and the law would regard as reasonable.

The position, on what I am advised is the proper interpretation of existing statutes, is this. Before the Bill is enacted, the law provides that no transfers from the general rate fund to special funds would count as relevant expenditure, whether creating a deficit or not. If we had proceeded to court to resolve this matter prior to the Bill becoming an Act, there would have been no question of Birmingham receiving any money. The reason for the Bill is to make the law such that transactions between the rate fund and the special fund will attract grant. With the present state of the law, it would not attract grant.

On the basis of current practice, I would have taken steps to ensure that authorities could not gain grant unfairly by deficit financing once I had discovered that deficit financing was taking place. The way in which I have operated the system is to have paid block grant on the basis of the best information available to me about authorities' total expenditures. If an authority submitted a figure of total expenditure which I considered was not a fair statement of its expenditure, I would seek to replace that figure with one which was a fair statement of total expenditure, on the ground that the replacement figure represented the best available information. Before using this figure, I would give the authority involved the opportunity to comment. If all had been well with my powers, I would have continued to act in that way to prevent authorities from gaining unfair advantage through deficit financing once it had come to light that it was happening.

Photo of Mr Michael Meadowcroft Mr Michael Meadowcroft , Leeds West

I have listened carefully to the Secretary of State's remarks about deficit financing. Does he agree that there is a factor to which he has not referred which further confuses the issue, which is the argument over what is deficit financing? Leeds city council's representations to the Department of the Environment include the claim that it did not put the account in deficit in the way that he suggests. There is a series of complicated figures and it is suggested that putting together the transport grant and everything else produces an artificial figure of the sort that is set out in the right hon. Gentleman's allegations about the actions of Leeds city council. The city council argues that the Department has taken an incorrect approach. I should like to know what is being done to resolve this arithmetical problem, which does not involve moral, legal or retrospective considerations.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury 6:45 pm, 26th January 1987

I have not mentioned Leeds, but I have said that we want to get at the facts, which will show what every authority has done in the group that we are considering. We want to analyse what has happened and then to talk to the authorities before coming to a firm conclusion whether grant should be paid. We can resolve the issue of what Leeds city council has done by the council coming to my Department and giving it the full details. We shall form a view in the light of what we learn. As I have explained, the deficit financing issue first came to light in a letter from the Birmingham auditors of 16 May. That is when we started to examine our powers, and we concluded that the practice followed in calculating the relevant and total expenditure was incorrect in law. That in turn led to the advice which I received from my officials at the end of September, which was that I should take legal advice on whether the definition was wrong and whether we should legislate in the way that the Bill seeks to do.

The Bill enables total expenditure to be calculated in line with the practice that we have adopted. It will provide that transfers to special funds count within relevant, and therefore total, expenditure. It will provide also that I may specify adjustments to relevant expenditure that would enable certain sorts of transfer, such as deficit financing of special funds, to be excluded. These specifications will, of course, be subject to the scrutiny of the court in the normal way, as were directions on total expenditure under the 1980 Act. Any decision that I would have taken if it had not been necessary to introduce the Bill, or that I may take despite the fact that we have the Bill, will be subject to judicial review if any authority decides that it would like to take that course.

There are two classes of authority which might feel that they wish to take legal action. One group consists of the Birmingham and Leeds type of authority which has been engaging in deficit financing, and the other of all the authorities which have not been, which might feel that they would lose grant as a result of the grant paid to deficit financers.

To sum up, my current belief, subject to any further evidence that I may receive, is that it would be inequitable to pay grant that reflects deficit financing of special funds, either now or under the Bill. On the basis of the present statutes, deficit financing could not count for grant purposes. I am sure that local authorities would not want me to take account of deficit financing when paying grants. Under the Bill it will be open to me to make specifications that will exclude deficit financing from relevant and total expenditure. Those specifications will be subject to the scrutiny of the court in the normal way.

I must advise the Committee to reject the amendment. It would not achieve that which the hon. Member for Hodge Hill wishes. Great interest has been shown in the subject and I hope that the full account that I have given the Committee will enable the hon. Gentleman to feel that he should not press the amendment to a Division.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

There is an important issue to be raised but we shall discuss it as briefly as possible. The Secretary of State has helped matters slightly by the approach that he has taken and is taking. However, there is a need for us to probe even further.

The right hon. Gentleman has said that he has to pay grant on the basis of rate support grant law and not on the basis of what the auditor says. Surely it must follow that if an audutior says in respect of a certificate that there has been a fiddle and something unlawful has taken place, the Secretary of State will not pay any grant. The auditors said that Birmingham's expenditure was a lawful charge on the city's account, so surely that cannot be dismissed by the Secretary of State as a fiddle. I believe that that was one of his descriptions of the action of Birmingham city council.

I agree that it would be an abuse if local authorities sought to create extra grant from the Government—the right hon. Gentleman mentioned the sum of £80 million. Birmingham council did not set out to create a grant deficit—artificial or otherwise—in order to maximise grant. It discovered only in January 1985 that there had been an underspend. That was the difficulty faced by Birmingham. It did not set out to create the deficit. It was an accident.

That was made clear in the correspondence, especially the letter from the city solicitor, dated 25 February 1986, which contained four propositions. One of those propositions made it quite clear that: The General Rate Act 1967 Section 2 specifically anticipates that an authority may go into deficit in any one year by requiring the rate to meet expenditure in previous rating periods. That is not what lay behind what the city sought to do. The letter went on: The decision to establish the Supply of Goods and Services Fund was made at the meeting of the Finance and Management Committee on 28 January 1985. That report is one that we would like the Secretary of State to read—if he has not already done so. The letter continues: In making that decision the Committee were aware of a prospective deficit for the year of £8·4 million and of a financial advantage to the council of making the fund contribution. The facts are that the council was aware of the prospective deficit and it was the prospective underspend. One cannot claim that Birmingham city council, having come under Labour control in May 1984, went hell for leather to overspend. In January 1985, the council was aware that it had underspent and was seeking to protect its position. Both the Audit Commission and the city auditors—

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

Will the hon. Gentleman also read out the fourth paragraph which states: The fund contribution has increased the amount of block grant payable to the Council and is therefore to the Council's financial advantage.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

I had intended to read out paragraph 4 and I also missed out the first point made in the letter.

The decision that Birmingham took in January was the result of knowing that there would be an underspend which it could not help. It did not deliberately create a situation on an artificial deficit grant in order to maximise the grant it received.

In January 1985 it became apparent that there would be an underspend and it would have been stupid for the officers of the city council not to advise the council of the most advantageous way out of a difficult situation. One of the officers at that time was Mr. Paul Sabim, who is now chief executive of Kent and probably one of the highest paid local government officers in the country, earning a salary approaching £60,000. The city would have been stupid not to take such advice. That advice was sought after circumstances discovered in the January. It is important to understand that the council did not deliberately seek the situation.

I asked the Secretary of State to consider the reasons given by Birmingham council and he did say he had an open mind. The underspend caused the problem, not because the council had gone into deficit financing per se; nor did it use artificial figures or money that was not available. Despite the Secretary of State's apparent sweetness, what sticks in the craw of the right hon. Gentleman is the fact that in May 1984 Labour took control of Birmingham, at the will of the electorate, after two consecutive years of reduction in rates under Tory administration. The fact is that Birmingham people woke up and discovered the effect of those rate cuts. I will not go over the background as it would be out of order and everyone is aware of the facts. The fact is that there was a threatened wholesale sacking of dinner ladies and a reduction in all services because of the cut in rates. The people of Birmimgham decided to change the policy and change the council. It is that which sticks in the craw of the Secretary of State. My hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) has already said that the decision to set up the fund for 1983–84 and 1984–85 was taken on an all-party basis. Birmingham council had operated on that basis.

Since the change of council, year after year, without exception the Government have forced, by fixation and manipulation of rate support grant legislation, Birmingham council, under Labour control, to put up the rates. That is what happened. It is a case of "Ridley's revenge for Bosworth's blunder" in losing control of the jewel in the crown.

The conduct of those Conservative Members who represent Birmingham has been absolutely disgraceful. They have put party before the city and they deserve the undying contempt of their constituents. As a direct result of the action in the Bill and the decisions the Secretary of State will take later on, the rates paid by Birmingham's ratepayers will go up when they should not. The council will be faced with this for five years without the possibility of knowing whether the council has rated correctly. How can local government operate on this basis? How can a Labour-controlled, Tory-controlled or hung authority operate in such a manner? Where there is majority control, how can it be that local government will not know for five years after the event whether it is able to fix a rate?

The Secretary of State has a lot of ground to make up before he can convince the people of Birmingham that he is not exacting revenge upon them.

Photo of Clare Short Clare Short , Birmingham, Ladywood

It is remarkable that the Secretary of State has been calm, reasonable and not at all rude in answering the contribution of my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis). I have not had the pleasure or displeasure of being on a Committee where the Secretary of State has led for the Government, but in my time in this House I have not met another member of the Government who is so unnecessarily arrogant and rude in putting forward his case.

What was notable about the Birmingham issue was the change in the Secretary of State's whole demeanour. Suddenly the right hon. Gentleman says that he has an open mind and that he will reconsider everything. That is welcome, of course. Our basic job is to defend Birmingham from the cuts and poverty that it currently faces. Nevertheless, the Secretary of State's attitude was undoubtedly different from normal.

I refer to a letter that I have mentioned previously in the Committee. It is a letter dated 16 December to the chief executive of Birmingham, Mr. Tom Caulcott, from the Department of the Environment. The letter refers to the Bill and states that it gives the Secretary of State power to look back at what Birmingham did in 1984–85 in setting up the special fund and that the Department will look into the details under the new powers in the Bill and then decide what to do. The Secretary of State tried to imply that Birmingham would have been in trouble whether or not the legislation was introduced, but that letter indicates otherwise. It is because of the Bill that the Secretary of State can act in this way.

At previous sittings of the Committee I attempted to refer to Birmingham's case and that of other authorities affected by this provision of clause 5 because it represents an unacceptable element of retrospection in the Bill. Until now, the Secretary of State has brushed aside all such references. He says that he wants to come to Birmingham to discuss the case, but when he says that he is merely restating the law to be as everyone had thought it was previously that is clearly not true in this instance. The legal officers in Birmingham, two different city treasurers and Price Waterhouse, the auditors, crawled over the law and decided that what Birmingham was doing was absolutely lawful, but the powers in this Bill and in clause 5 would bring into question the legality of what Birmingham did. That is pure, absolute retrospection. It is changing the law after the action has been taken. The Secretary of State is giving himself powers to take away from the city of Birmingham £8 million that it thought it had. At least I thought that it was £8 million, as that is what the brief from Birmingham said. The Secretary of State, however, in the course of his calm and reasonable remarks, quietly referred to £17·1 million. That is terrifying—perhaps we are talking about more than £8 million.

7 pm

In 1984–85, with all-party support, Birmingham took a decision which was authorised by the auditors with clear legal advice from the city treasurer that what it was doing was legal. The Secretary of State is now seeking to change the law. My hon. Friend the Member for Hodge Hill said that he thought that the provision affected only Birmingham, but, as the Secretary of State made clear, it goes wider than Birmingham and 12 other authorities are affected. Probably none has a considerable sum at stake, but the majority of them are Labour controlled. It may be worth listing them briefly. They are Cambridgeshire and Warwickshire, both hung authorities, Liverpool, St. Helens, Wigan, Leeds, Birmingham, Hammersmith and Fulham, Lewisham, Newham and Ealing—all Labour controlled—Oadby and Wigston, and West Wiltshire, which are Tory controlled.

I understand that the figures involved in those cases are fairly limited.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I point out, for the sake of accuracy, that Warwickshire is not doing the same thing as deficit financing. It is a separate case. Anyone who wants to raise that case can do so, but it has nothing to do with this group.

Photo of Clare Short Clare Short , Birmingham, Ladywood

I am grateful for that information. The list was provided by the city of Birmingham. I am sure that the neighbouring county of Warwickshire will be relieved.

What the Secretary of State is doing is truly arrogant. When he refers to what Birmingham did and talks about whether it was right or equitable, he is substituting his judgment of what is right and of how local authorities should behave for what the law said when the council took its action. He is not entitled to do that. He has to bring forward law that applies to local government, and local government then has to act under the provision of that law. If he is unhappy with the actions that it then takes, as the Government constantly have been, he must bring in new legislation to change future behaviour rather than refer back to previous behaviour.

It is no secret that the people of Birmingham are deeply disgruntled about the way in which they have been treated by the Government. Birmingham is a peculiarly low-spending authority in Labour hands, and all sorts of games have been played with Birmingham finances as the Government have changed the nature of local government finance to prevent high-spending Labour authorities from protecting jobs and services while allowing low-spending Tory authorities to increase spending when they wished. When the Secretary of State found that that entitled Birmingham to an increase of about £61 million in rate support grant over the past couple of years, he indulged in all sorts of manoeuvres and fiddles to take considerable sums of money away from Birmingham. This £8 million —Heaven help us if it is £17·1 million—is more of the same treatment. I hope that the Secretary of State will not be as punitive as he says that he can be under the Bill.

The principle of retrospective legislation is deeply objectionable. The Secretary of State's justification is that his action is necessary because everyone misunderstood the law, but that does not apply in this instance. He is going beyond that justification to take away from cities such as Birmingham considerable sums of money that they desperately need.

Photo of Mr Robin Corbett Mr Robin Corbett Opposition Whip (Commons)

The Government's case for the Bill is set out in the Secretary of State's misleading claim when he announced the Bill. He said: We are merely validating the past and putting right for the future the position that the whole House thought obtained."—[Official Report, 16 December 1986; Vol. 107, c. 1054.] In other words, the Bill was to end the uncertainty. That qualifies for a Goebbels' award for distortion.

At the heart of this amendment is the city of Birmingham. Not content with stealing £39 million from the rate support grant, the Secretary of State now proposes, in the name of certainty, to fine us £8 million. Was the supply of goods and services fund set up by the city of Birmingham in 1984–85 legal? Yes, says the city of Birmingham, on an all-party basis. Yes, says Price Waterhouse, its professional auditors and the Audit Commission, so loved by the Secretary of State. Then, years later, along comes the Secretary of State to say no, retrospectively. Moreover it is a Secretary of State who was not merely convicted but actually pleaded guilty when the city of Birmingham took him to court last year for another £7 million robbery. He then came down here and changed the law. In effect, the Secretary of State is accusing the city of Birmingham of something of akin to fraud, Price Waterhouse of something akin to professional incompetence and the Audit Commission of being a willing partner in those actions. Those are extremely serious charges, touching on the commercial reputation of Price Waterhouse, the integrity of the Audit Commission and the integrity and professionalism of officers of the city of Birmingham council.

The Secretary of State says that he has an open mind about the amendment, but I fear that at the back of that open mind is an empty head. He has given no sign that he is prepared to think again about what the amendment seeks to achieve. It gives him the opportunity to acknowledge and admit his false charges against the city of Birmingham. My hon. Friends have shown that those charges are false. The amendment enables him to accept, without damage to the stated intention of the Bill or any other local authority, that what the city of Birmingham did was legal when it did it. It was told that it was legal when it set up that special fund. Therefore, it should remain legal, as attested to by the independent auditors and the Audit Commission. If the Secretary of State meant what he said earlier about a no-change policy, he has only one honourable course. His integrity is at stake in this debate.

The loss of £8 million is equivalent to 5p on the rates or an extra £12·75 for a family in a typical post-war three-bedroomed semi with a garage. The honourable course for the Secretary of State is to ensure that his stated no-change policy will apply under the Bill. If he is not willing to do that and prefers dogma to decency, he will perpetrate a gross misjudgment and an abuse of his powers. His honour and integrity are at stake in his worthless allegation about connivance and fiddling by the city of Birmingham, its auditors and the Audit Commission. If he insists that he is right—he has all but done so tonight—he will be shown to be weak in both judgment and prudence.

Photo of Mr Michael Meadowcroft Mr Michael Meadowcroft , Leeds West

I shall be brief, because we want to get on to major amendments. However, lest this should be solely a Birmingham argument, I make two brief points about the city of Leeds, which is caught in the same trap.

The Secretary of State said earlier that if Leeds had a case that the accounting situation was not as alleged by his Department, it should make its case to him. It has done so and on 17 December it responded in detail to the case put by officials from the Department of the Environment. I hope that the Secretary of State's undertaking will be taken on board and the case will be considered carefully. I am certainly no advocate of many of the policies carried out by the Labour-controlled council in Leeds. I have expressed my opposition to them in the Chamber on numerous occasions.

I endeavour to be fair about what is done in relation to local government. The city council decided on certain procedures which at that time were legal and the council could not be questioned about their legality by the Department of the Environment. It is wrong for the Government later to say that they dislike and challenge the morality of what was done and will penalise the council. Whether the expenditure, or the use of the special fund or whatever it was, was expenditure that I and my Liberal colleagues on the council would have supported, I support the argument in the House that the council should not now be penalised retrospectively for something that it did in good faith and within the law as it stood. I support the amendment.

Photo of Mr John Fraser Mr John Fraser , Norwood

The Secretary of State says that this Bill is to regularise payments made by way of rate support grant in good faith to local authorities which had incurred expenditure or which had accrued income. It is difficult to quarrel with his proposition that it is right to try to regularise acts carried out in good faith, especially in cases where the problem has arisen as a result of the intricate controls that the Department of the Environment has sought to impose on local authorities. It is quite understandable that once the Department interferes in such detail with the judgment of local authorities about their expenditure, trouble is bound to result.

We give the Secretary of State the benefit of the doubt on the main proposition. Where local authorities and he acted in good faith there is a case for saying let byegones be byegones and for allowing the Secretary of State to make an exception to the general rule of law, even though that exception is retrospective. My next point about retrospection has been pressed upon me many times because I represent the London borough of Lambeth, where the councillors have been surcharged. The argument about retrospection runs in two ways. I have never objected to retrospective legislation that forgives and forgets and which makes lawful that which was previously unlawful. My objection to retrospective legislation is when it makes unlawful that which was lawful. That is at the centre of the debate about Birmingham.

For the sake of argument we allow the Secretary of State to make an exception to a rule of law, but in the case of Birmingham he proposes to make an exception to the exception and to say that some things done in good faith by local authorities should be an exception to his general rule and should, if he so decides, be disallowed. If Birmingham had deliberately engaged in deficit financing or in a dishonest or illegal transaction, neither I nor any of my hon. Friends would support the Birmingham case. That is not the argument advanced by the Secretary of State. His argument is simply one of convenience.

If one wants to find a comparison in other forms of law, one can find it in the distinction between tax evasion and tax avoidance. Tax evasion is illegal and a criminal offence where it involves falsifying accounts in order to gain advantage from the Inland Revenue. Tax avoidance is what a judge has described as perfectly lawful. It means putting one's affairs in such order as to minimise tax liability. It is not only lawful for local authorities to do that in the field of rate support grant but, as I understand it from events in my own local authority, it is the duty of a local council to maximise its income. One of the reasons why my councillors were surcharged was that it was alleged by the district auditor that they failed to maximise their income. If a local authority acts within the law it may well be its duty, like Birmingham, to maximise its income —provided it acts in good faith and in a lawful way.

The facts which have emerged from this debate are, firstly, that Birmingham acted in good faith. There is no evidence against that proposition. Secondly, I understand that it is strongly disputed by those who urged the Birmingham case—Labour and Tory alike—that the deficit, if there was one, was the consequence of the transaction that the Secretary of State seeks to impugn. Thirdly, the transaction was open and above board, had all-party support and was precedented in previous years. Fourthly, the transaction was sanctioned and authorised by a firm of accountants and auditors which is beyond reproach.

For those reasons the matter was entered into lawfully and in good faith. That is why we object to a retrospective change in the law which would disallow that which was believed to be lawful, and was lawful at the time. It is written in the Rubaiyat of Omar Khayyam: The Moving Finger writes; and, having writ,Moves on: nor all thy Piety nor WitShall lure it back to cancel half a Line,Nor all thy Tears wash out a Word of it. We do not believe that the piety or the wit or even the tears of the Secretary of State should retrospectively change Birmingham's accounts.

Photo of Mr Terry Davis Mr Terry Davis , Birmingham, Hodge Hill 7:15 pm, 26th January 1987

I am not sure whether the Secretary of State wishes to intervene again, but if he does I shall be happy to give way to him. Perhaps having listened to my arguments and to the arguments of my hon. Friends, he is about to give us some good news.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

It would be courteous of me to respond to speeches made after my earlier one. One or two things have been said and I should like to comment on them. The hon. Member for Birmingham, Perry Barr (Mr. Rooker) rightly said that Birmingham had an underspend for the year in question. In that case, how did it end up with a deficit? That point was not quite appreciated by some Opposition hon. Members. Birmingham had an underspend of about £7·5 million but transferred to the special fund about £15 million—far more than the underspend. Therefore, it was short of £7·5 million and that transaction caused some doubt in the minds of the Audit Commission and the auditor.

The hon. Member for Perry Barr cannot and should not seek to maintain that this is in any sense revenge by the Government against Birmingham. Birmingham has the best rate support grant settlement for next year of any local authority. It has £31 million more than it got this year. Birmingham has the best figure in the country for both the percentage and the volume of increase, and for that reason the hon. Gentleman should drop his thesis.

Photo of Clare Short Clare Short , Birmingham, Ladywood

That all sounds very good, but the Secretary of State must also say that, according to EEC figures, Birmingham has the biggest area of poverty in western Europe and is well below its grant-related expenditure. Yes, it is to have an increase, but that increase will come nowhere near to meeting its need to provide services at the level at which the Government judges local authorities should provide them.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

The Labour party's definition of a cut is that when an authority wants £60 million more it gets £30 million more and that is described as a cut of £30 million. In truth, it is an increase of £30 million. We have that trend in all Labour figures about cuts, but Labour is talking about cuts from what local government wants, but they are usually increases on what the authorities had last year. Let me put the hon. Member for Birmingham, Ladywood (Ms. Short) right again.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

No, I must get on. I am taking up Opposition time. I can tell the hon. Lady and the hon. Member for Birmingham, Erdington (Mr. Corbett) that the Bill is not designed to deal with Birmingham and the other authorities. The power existed under the old 1980 Act, and if we had come to the conclusion that we should deal with deficit financing we could have done so in two ways. First, we could have asked Birmingham to replace the figure of total expenditure with a figure that we thought was a fairer statement of what it had spent. Alternatively, under the 1980 Act I could have made a direction before this Bill was ever conceived. Therefore, there were two ways in which I could have dealt with it if I had wished to. I would have employed one of those methods if I had decided that it was necessary. There is no retrospection.

The hon. Member for Norwood (Mr. Fraser) said that there is either tax avoidance or tax evasion. With respect, it is neither of those things. Year after year local authorities up and down the land try all sorts of things to see whether they can get a little more rate support grant. I do not blame them. It has been acknowledged in the debate that that is a perfectly proper thing to do. They do not necessarily succeed. We have to see whether what they are trying is fair and right and we have to obey the law. Grant is never determined until we have the full details of all those things.

Birmingham is well enough advised to tell hon. Members that we are not taking powers retrospectively in the Bill. The powers were there before and will be there in the future if the Bill is passed and in most cases they would have been subject to judicial review. Therefore, the case of the hon. Member for Ladywood does not stand up.

Photo of Mr Terry Davis Mr Terry Davis , Birmingham, Hodge Hill

I want to correct some of the points made by the Secretary of State.

Birmingham Members are not complaining about the cut in the amount of money we want. We are talking about a cut in the amount of money that we need— not the amount that we want. In his original proposals the Secretary of State was planning to give Birmingham a much larger amount than he is now proposing. My hon. Friends and I would want much more because we live with the problems of poverty in Birmingham. The reduction about which we are complaining is the Secretary of State's reduction in the amount that he was planning to give compared with the amount that he is now planning to give. When I talk about the reduction in the amount that we need, I mean need—according to the Secretary of State's criteria—that is, grant-related expenditure.

The right hon. Gentleman told the House that there was an underspend of £7·5 million. That is not correct. I have looked at the reports. The underspend was twice that amount. The Secretary of State is confused. He is talking about Birmingham's expenditure being less than the money it took in receipts. We are talking about an underspend compared with budget. The underspend compared with budget was twice the figure mentioned by the right hon. Gentleman. The right hon. Gentleman claimed that the deficit was the result of the transfer to a special fund, but that is not correct. I remind him that he or his officials have received correspondence from the city treasurer and other officers in Birmingham explaining that the deficit was not the result of a transfer to a special fund. I do not know whether the Secretary of State is indicating that he agrees or disagrees. My hon. Friends will tell him that I am well known in Birmingham for not accepting lightly what the city officers tell us. However, one exception to my criticism of the city officers is the present city treasurer. He has assured me that there was nothing untoward or underhand in the way in which Birmingham treated its accounts in 1984–85, and I believe him.

The Secretary of State said tonight from the Dispatch Box that the transfer was to obtain extra grant. I have had the advantage of going through the reports that were considered by the committees of the city council and by all parties on the council. I cannot find any suggestion in the reports that there should be a transfer to obtain extra grant. On the contrary, the transfer was recommended by the then city treasurer because the council was going to have a windfall gain as a result of reductions in interest rates. The budget was based on one level of interest rates and when the interest rates went down the council found that it was not going to spend as much as expected. The city treasurer advised the city councillors to transfer that amount of money to a special fund in case there was a windfall loss on the succeeding year as a result of interest rates rising again, The report says that they should do it not to obtain extra grant but to avoid grant penalty in succeeding years because the council would then be able to charge some items of expenditure to the special fund and thus avoid penalty.

The right hon. Gentleman said that he approaches the matter with an open mind. If I have been correctly informed by city officers, that is not what he has said to the leader of the city council and the city officers in Birmingham. They do not think that he has an open mind. He said that there are some defects in the wording of our amendment. I make no apology for that. It is usual for the wording in Back Benchers' amendments to be defective. However, it is usual in those circumstances for a Secretary of State who is sympathetic to accept the principle of an amendment and to ask for it to be withdrawn so that he can table a suitable amendment in another place. The Secretary of State has not done that. Therefore, I ask my hon. Friends representing Birmingham constituencies and those from the rest of the United Kingdom to support me in the Division Lobby.

Question put, That the amendment be made:—

The Committee divided: Ayes 168, Noes 242.

Division No. 71][7.25 pm
AYES
Abse, LeoConlan, Bernard
Adams, Allen (Paisley N)Cook, Frank (Stockton North)
Alton, DavidCook, Robin F. (Livingston)
Anderson, DonaldCorbett, Robin
Archer, Rt Hon PeterCorbyn, Jeremy
Ashley, Rt Hon JackCrowther, Stan
Atkinsop, N. (Tottenham)Cunliffe, Lawrence
Bagier, Gordon A. T.Cunningham, Dr John
Banks, Tony (Newham NW)Davies, Ronald (Caerphilly)
Barron, KevinDavis, Terry (B'ham, H'ge H'l)
Beckett, Mrs MargaretDeakins, Eric
Bell, StuartDobson, Frank
Benn, Rt Hon TonyDormand, Jack
Bennett, A. (Dent'n & Red'sh)Dubs, Alfred
Bermingham, GeraldDunwoody, Hon Mrs G.
Bidwell, SydneyEadie, Alex
Blair, AnthonyEastham, Ken
Boyes, RolandEvans, John (St. Helens N)
Bray, Dr JeremyFatchett, Derek
Brown, Gordon (D'f'mline E)Field, Frank (Birkenhead)
Brown, Hugh D. (Provan)Fields, T. (L'pool Broad Gn)
Brown, N. (N'c'tle-u-Tyne E)Fisher, Mark
Buchan, NormanFlannery, Martin
Caborn, RichardFoot, Rt Hon Michael
Callaghan, Rt Hon J.Forrester, John
Callaghan, Jim (Heyw'd & M)Foster, Derek
Campbell-Savours, DaleFoulkes, George
Carter-Jones, LewisFraser, J. (Norwood)
Cartwright, JohnFreud, Clement
Clark, Dr David (S Shields)George, Bruce
Clay, RobertGilbert, Rt Hon Dr John
Clelland, David GordonGolding, Mrs Llin
Clwyd, Mrs AnnGould, Bryan
Cocks, Rt Hon M. (Bristol S)Gourlay, Harry
Cohen, HarryHamilton, W. W. (Fife Central)
Hancock, MichaelPavitt, Laurie
Harrison, Rt Hon WalterPendry, Tom
Haynes, FrankPike, Peter
Heffer, Eric S.Powell, Raymond (Ogmore)
Hogg, N. (C'nauld & Kilsyth)Prescott, John
Holland, Stuart (Vauxhall)Radice, Giles
Home Robertson, JohnRandall, Stuart
Howarth, George (Knowsley, N)Raynsford, Nick
Hoyle, DouglasRedmond, Martin
Hughes, Robert (Aberdeen N)Rees, Rt Hon M. (Leeds S)
Hughes, Roy (Newport East)Richardson, Ms Jo
Hughes, Sean (Knowsley S)Roberts, Allan (Bootle)
Hughes, Simon (Southwark)Roberts, Ernest (Hackney N)
Janner, Hon GrevilleRogers, Allan
Jones, Barry (Alyn & Deeside)Rooker, J. W.
Kaufman, Rt Hon GeraldRoss, Ernest (Dundee W)
Kennedy, CharlesRowlands, Ted
Kinnock, Rt Hon NeilSheerman, Barry
Lambie, DavidSheldon, Rt Hon R.
Lamond, JamesShore, Rt Hon Peter
Leadbitter, TedShort, Ms Clare (Ladywood)
Leighton, RonaldShort, Mrs R.(W'hampt'n NE)
Lewis, Terence (Worsley)Silkin, Rt Hon J.
Litherland, RobertSkinner, Dennis
Lloyd, Tony (Stretford)Smith, C.(lsl'ton S & F'bury)
Lofthouse, GeoffreySmith, Rt Hon J. (M'ds E)
Loyden, EdwardSnape, Peter
McCartney, HughSoley, Clive
McDonald, Dr OonaghSpearing, Nigel
McKay, Allen (Penistone)Stott, Roger
McNamara, KevinStraw, Jack
McTaggart, RobertThomas, Dafydd (Merioneth)
McWilliam, JohnThomas, Dr R. (Carmarthen)
Madden, MaxThompson, J. (Wansbeck)
Marshall, David (Shettleston)Thome, Stan (Preston)
Martin, MichaelTinn, James
Mason, Rt Hon RoyTorney, Tom
Maxton, JohnWainwright, R.
Maynard, Miss JoanWardell, Gareth (Gower)
Meacher, MichaelWareing, Robert
Meadowcroft, MichaelWeetch, Ken
Michie, WilliamWelsh, Michael
Millan, Rt Hon BruceWhite, James
Mitchell, Austin (G't Grimsby)Williams, Rt Hon A.
Morris, Rt Hon A. (W'shawe)Wilson, Gordon
Nellist, DavidWinnick, David
Oakes, Rt Hon GordonYoung, David (Bolton SE)
O'Brien, William
O'Neill, MartinTellers for the Ayes:
Park, GeorgeMr. James Hamilton and
Patchett, TerryMr. Don Dixon.
NOES
Adley, RobertBrittan, Rt Hon Leon
Aitken, JonathanBrooke, Hon Peter
Alexander, RichardBrown, M. (Brigg & Cl'thpes)
Amess, DavidBrowne, John
Ancram, MichaelBruinvels, Peter
Arnold, TomBuchanan-Smith, Rt Hon A.
Ashby, DavidBudgen, Nick
Atkins, Rt Hon Sir H.Burt, Alistair
Atkinson, David (B'm'th E)Butcher, John
Baker, Nicholas (Dorset N)Butterfill, John
Batiste, SpencerCarlisle, John (Luton N)
Bellingham, HenryCarttiss, Michael
Bendall, VivianCash, William
Benyon, WilliamChapman, Sydney
Biffen, Rt Hon JohnChope, Christopher
Biggs-Davison, Sir JohnChurchill, W. S.
Blackburn, JohnClark, Hon A. (Plym'th S'n)
Body, Sir RichardClark, Dr Michael (Rochford)
Bonsor, Sir NicholasClark, Sir W. (Croydon S)
Bottomley, PeterClarke, Rt Hon K. (Rushcliffe)
Bottomley, Mrs VirginiaCockeram, Eric
Bowden, A. (Brighton K'to'n)Conway, Derek
Bowden, Gerald (Dulwich)Coombs, Simon
Boyson, Dr RhodesCope, John
Brandon-Bravo, MartinCouchman, James
Bright, GrahamCranborne, Viscount
Brinton, TimDickens, Geoffrey
Dicks, TerryMeyer, Sir Anthony
Dorrell, StephenMiller, Hal (B'grove)
Douglas-Hamilton, Lord J.Mills, lain (Meriden)
Dover, DenMills, Sir Peter (West Devon)
du Cann, Rt Hon Sir EdwardMiscampbell, Norman
Dunn, RobertMitchell, David (Hants NW)
Durant, TonyMoate, Roger
Dykes, HughMonro, Sir Hector
Eggar, TimMontgomery, Sir Fergus
Evennett, DavidMorrison, Hon C. (Devizes)
Eyre, Sir ReginaldMoynihan, Hon C.
Farr, Sir JohnMudd, David
Favell, AnthonyNeale, Gerrard
Fenner, Dame PeggyNeedham, Richard
Fletcher, Sir AlexanderNelson, Anthony
Forman, NigelNewton, Tony
Forth, EricNicholls, Patrick
Fox, Sir MarcusOnslow, Cranley
Galley, RoyOppenheim, Phillip
Garel-Jones, TristanOttaway, Richard
Glyn, Dr AlanPage, Richard (Herts SW)
Goodhart, Sir PhilipPatten, Christopher (Bath)
Gow, lanPatten, J. (Oxf W & Abgdn)
Gower, Sir RaymondPawsey, James
Griffiths, Sir EldonPeacock, Mrs Elizabeth
Hamilton, Neil (Tatton)Percival, Rt Hon Sir lan
Hannam, JohnPollock, Alexander
Harris, DavidPowell, William (Corby)
Hayes, J.Powley, John
Hicks, RobertPrice, Sir David
Higgins, Rt Hon Terence L.Proctor, K. Harvey
Hirst, MichaelRaffan, Keith
Holland, Sir Philip (Gedling)Raison, Rt Hon Timothy
Howarth, Alan (Stratf'd-on-A)Rathbone, Tim
Howarth, Gerald (Cannock)Rhodes James, Robert
Howell, Ralph (Norfolk, N)Rhys Williams, Sir Brandon
Jackson, RobertRidley, Rt Hon Nicholas
Joseph, Rt Hon Sir KeithRidsdale, Sir Jullan
Key, RobertRoberts, Wyn (Conwy)
Knowles, MichaelRobinson, Mark (N'port W)
Knox, DavidRoe, Mrs Marion
Lamont, Rt Hon NormanRost, Peter
Lang, lanRowe, Andrew
Latham, MichaelRumbold, Mrs Angela
Lawler, GeoffreySackville, Hon Thomas
Lawrence, IvanSainsbury, Hon Timothy
Leigh, Edward (Gainsbor'gh)Sayeed, Jonathan
Lennox-Boyd, Hon MarkShaw, Giles (Pudsey)
Lester, JimShaw, Sir Michael (Scarb')
Lewis, Sir Kenneth (Stamf'd)Shelton, William (Streatham)
Lightbown, DavidShepherd, Colin (Hereford)
Lilley, PeterShepherd, Richard (Aldridge)
Lloyd, Sir lan (Havant)Shersby, Michael
Lloyd, Peter (Fareham)Silvester, Fred
Lord, MichaelSkeet, Sir Trevor
Luce, Rt Hon RichardSmith, Tim (Beaconsfield)
Lyell, NicholasSpeed, Keith
McCrindle, RobertSpeller, Tony
McCurley, Mrs AnnaSpencer, Derek
Macfarlane, NeilSpicer, Jim (Dorset W)
MacKay, Andrew (Berkshire)Spicer, Michael (S Worcs)
MacKay, John (Argyll & Bute)Squire, Robin
Maclean, David JohnStanbrook, Ivor
McLoughlin, PatrickStanley, Rt Hon John
McNair-Wilson, P. (New F'st)Steen, Anthony
McQuarrie, AlbertStern, Michael
Madel, DavidStevens, Lewis (Nuneaton)
Major, JohnStewart, Allan (Eastwood)
Malins, HumfreyStewart, Andrew (Sherwood)
Malone, GeraldStewart, lan (Hertf'dshire N)
Maples, JohnStradling Thomas, Sir John
Marland, PaulTapsell, Sir Peter
Marlow, AntonyTaylor, John (Solihull)
Marshall, Michael (Arundel)Taylor, Teddy (S'end E)
Mates, MichaelTemple-Morris, Peter
Mather, Sir CarolTerlezki, Stefan
Maude, Hon FrancisThomas, Rt Hon Peter
Maxwell-Hyslop, RobinThompson, Donald (Calder V)
Mayhew, Sir PatrickThornton, Malcolm
Merchant, PiersThurnham, Peter
Townend, John (Bridlington)Watts, John
Townsend, Cyril D. (B'heath)Wells, Sir John (Maidstone)
Trippier, DavidWheeler, John
Trotter, NevilleWhitfield, John
Twinn, Dr lanWhitney, Raymond
van Straubenzee, Sir W.Wiggin, Jerry
Vaughan, Sir GerardWolfson, Mark
Viggers, PeterWood, Timothy
Waldegrave, Hon WilliamWoodcock, Michael
Walden, GeorgeYeo, Tim
Walker, Bill (T'side N)Young, Sir George (Acton)
Waller, GaryYounger, Rt Hon George
Walters, Dennis
Ward, JohnTellers for the Noes:
Wardle, C. (Bexhill)Mr. Richard Ryder and
Warren, KennethMr. Michael Portillo.

Question accordingly negatived.

Amendments made: No. 89, in page 5, line 13, leave out `and (7)' and insert , (7) and (8)'.
No. 90, in page 5, line 27, at end insert— '(4A) In the application (by virtue of subsection (3) above) of sections 1 and 2 above in relation to an intermediate year beginning in 1983, 1984 and 1985, section 1 shall have effect as if for "a joint authority" in subsection (1)(c) there were substituted "the Greater London Council.".'—[Dr. Boyson.]

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