Orders of the Day — Local Government (Contracts) Bill

– in the House of Commons at 12:00 am on 23rd June 1997.

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Order for Second Reading read.

Photo of Hilary Armstrong Hilary Armstrong Minister of State (Local Government and Housing), Department of the Environment, Transport and the Regions, Minister of State (Department for Environment, Transport and the Regions) (Local Government) 3:31 pm, 23rd June 1997

I beg to move, That the Bill be now read a Second time.

I rise once again to move a Second Reading on an important issue, although I confess that it is no simpler than the Local Government Finance (Supplementary Credit Approvals) Bill, whose Second Reading I moved last week.

I welcome the new members to the Opposition Front Bench. I heard of the appointment of the right hon. Member for Sutton Coldfield (Sir N. Fowler) as I was driving to the big Methodist meeting in Durham, and it confirmed my belief in the resurrection. We are pleased that he is here, as well as the hon. Member for Christchurch (Mr. Chope), who is resurrected in another manner.

The Government are committed to promoting the opportunities for public-private partnerships, which offer the opportunity for increased value for money in the provision of the services that national and local government need. They allow public service staff involved in providing core public services, such as health and education, to get on with delivering those services in the most suitable facilities, without being distracted from their main responsibilities by worries about facilities management.

The purpose of the Bill is to remove private sector concerns about entering into partnership deals with local authorities. Partnerships can help to resolve the conflict between short-term financial pressures and long-term cost-effectiveness. The lowest initial construction cost for a building, road or other facility does not guarantee the lowest total cost over its lifetime for the service that it provides. There can be cost overruns and delays during construction, and false economies at the early stage leading to higher running costs later.

Partnerships can ensure the best value for money, and prevent under-investment, in the provision of assets and services. At the same time, the whole-life costs and risks of ownership are not borne by the public purse.

Partnerships can also improve value for money, by maximising the scope for outside revenues. There are often opportunities for the private sector partner to earn additional revenue, by using the facilities that he has helped to provide, without detriment to their availability to the prime user. That is particularly relevant in the case of schools and other local authority buildings that may be used for only part of the day. If a private sector contractor sees scope for obtaining such revenues, he should be ready to bid a lower price to the main user.

We have done away with the burdensome requirement on central Government and the national health service to test every project for partnership potential. There has not been—and cannot be—any compulsion on local authorities to use private finance, as they are autonomous decision-making bodies. The choice will remain with them, and support for direct local authority investment will continue. Nevertheless, we shall give every help and encouragement to authorities that want to use private finance.

The Government have no set view about the form that partnership schemes might take. I want to encourage all sorts of partnership initiatives for improving the quality and the management of local authority assets and services, while ensuring value for money for local taxpayers. The Government want to see new schools: we want to see the buildings and assets that local authorities need in order to deliver services.

I hope to see ideas for innovative partnership schemes brought forward as a contribution to the debate on the future of public service delivery. I also want to build on the successful joint venture projects already in place—for example, the Manchester metro and the Kirklees stadium.

Various partnership schemes have already been identified as pathfinder projects under the sponsorship of the public-private partnerships programme—we know it better as PPPP—which was set up by the local authorities. Experience of those schemes will be fed into consideration of the future of our public services.

The Government are committed to ensuring that partnerships between the public and private sectors work. We have inherited from the previous Government a private finance initiative process that has caused delay and uncertainty for many projects. Our business manifesto included a 12-point plan for partnership to speed up that process and encourage the development of good public-private partnership projects. One of those 12 points was to enact any new legislation that is needed to ensure that public bodies have the full legal power to enter into contracts. A separate Bill to deal with stalled projects in the national health service is currently before Parliament.

To turn the 12-point plan into action, my hon. Friend the Paymaster General announced on 8 May that he had asked Malcolm Bates, chairman of the Pearl Group and former member of the private finance panel, to undertake a rapid review of current PFI and public-private partnership arrangements. Malcolm Bates's review was completed on 13 June, and the Paymaster General has today published his conclusions and the action that he intends to take to ensure the delivery of good partnership projects. One of the review's recommendations is to take speedy action to overcome the uncertainty regarding local authority powers to enter into public-private partnership contracts. The Bill before the House aims to achieve that.

High-profile court cases have led banks to fear that partnership contracts with local authorities may be found unlawful, and thus unenforceable. The banks would then suffer financial losses. In the Allerdale and Waltham Forest cases, contracts entered into by local authorities were found to be null and void because the authority concerned did not have the power to enter into them. Because the contracts were found to be void, the private sector had no recourse to the authorities for compensation and so found itself saddled with bad debts.

The schemes that led to those court cases had special features and they are unlikely to be replicated. Nevertheless, the cases have created a perception that providing finance for long-term partnership contracts with local authorities is high risk. That is a perception that we must overcome if public-private partnerships are to work successfully in local government. We want to act quickly to dispel any doubts that there may be in the minds of potential backers of local authority partnership schemes. The Bill will achieve that. It clarifies local authority powers and protects contractors and banks if things go wrong.

The Bill does not disturb the fundamentals of existing legislation. It does nothing to alter the scope for contracts to be challenged under public law, by which I mean reviewed by the courts, for the protection of the taxpayer, or by local authorities' external auditors. It does nothing to undermine the long-standing powers of the auditor to question the lawfulness of local authority conduct or expenditure.

Discussions and consultations have shown that, to reassure contractors, banks and other lenders to contractors, the Bill needs to achieve two aims. First, it needs to make explicit the power of a local authority to enter into contracts of the sort envisaged in public-private partnership schemes. The Bill does that in clause 1, by making it clear that authorities' statutory functions confer power to enter into contracts under which assets or services, or both, are provided for the function in question. The Bill is not extending authorities' powers, but making explicit what was already implicit. It covers contracts directly or indirectly involved in discharging a specific function—for example, a contract that makes available a school building and one that provides IT facilities that are needed for the administration of council tax.

The Bill does not affect the ability of authorities to act in a manner that is incidental to their functions, as permitted by section 111 of the Local Government Act 1972. The Bill also does not affect authorities' powers to delegate their functions. There is already statutory provision under the Deregulation and Contracting Out Act 1994 for orders to be made that allow local authorities to contract out functions. One such order is being prepared in connection with highways functions. Contracts in other service areas seem less likely to entail delegation, but departments could consider making analogous orders if necessary.

Therefore, the Bill clarifies the powers of local authorities to enter into contracts. It then provides a safe harbour, by protecting contractors and lenders if an authority is later found to have entered into an arrangement that is invalid. To achieve that, clauses 2 and 3 introduce a certification procedure for contracts of a description specified in clause 4. In essence, they are contracts for five years or more involving the provision of both assets and services. The issue of a certificate—but not its content—needs the agreement of other parties to the contract, because the legal rights of all parties are affected by the certificate, in ways that I shall now describe.

The certification procedure is similar in principle to that proposed under the National Health Service (Private Finance) Bill, but is achieved differently. That is because the large number of local authorities makes it impracticable for Ministers to certify contracts individually, as is proposed for the NHS. Also, such intervention by Ministers would weaken local authorities' responsibilities and accountability, and that is not the way in which we as a Government would wish to go.

The effect of clause 2 is that no one—including the authority, the contractor or any other party to the contract—may argue in private law proceedings that the certified contract is unenforceable because the local authority did not have the power to enter into it. However, clause 5 preserves the right of local taxpayers or the authority's external auditor to challenge certified contracts under public law through judicial review and audit-related proceedings. In a judicial review, the court already has the discretion to allow a contract to continue if that is in the public interest. Clause 5(3) gives the court an equivalent discretion in audit-related proceedings.

To meet the case where the court determines that a contract is to be set aside, the Bill provides for the enforceability of special terms agreed between the parties with that possibility in mind. It would be open to the parties to agree discharge terms that provide, for example, for an asset to be made available for use by the authority. Clause 6 makes clear the authority's power to agree discharge terms, and provides that the enforceability of those terms is unaffected by the setting aside of the main contract.

If the parties do not agree terms to deal with the possibility that the contract may be set aside, or if the court finds that such terms are themselves unenforceable, clause 7 provides that the local authority shall, nevertheless, compensate the contractor as if it had repudiated the contract. That is the ultimate long stop.

We have considered whether there should be a more exact parallel with either the "safe harbour" provisions in the Companies Act 1985 or those in the Local Government and Housing Act 1989. The latter say that any absence of a power shall not prejudice a person lending money to an authority.

However, such an approach would leave too many questions unanswered. The matters to be settled in respect of a partnership contract are much more complicated than those relating to a loan agreement. Therefore, we do not believe that the "safe harbour" provisions in the Local Government and Housing Act 1989 are sufficient.

Clause 1(2) confirms that, where a third party funds a contractor, the authority may enter into a separate contract directly with the financier, who could be a direct lender to the contractor or a person involved in other forms of finance, such as bond issues. Such a contract may allow the financier "step-in" rights, by which I mean an arrangement whereby the financier would be able to nominate a replacement contractor if, for example, the original contractor became insolvent. The protection of the certification procedure and discharge terms are extended to a contract with a financier.

The Bill will apply, in England and Wales, to all bodies covered by part IV of the Local Government and Housing Act 1989 and to probation committees and the receiver for the Metropolitan police district. It will also apply to Scottish local authorities as defined in the Local Government (Scotland) Act 1973.

Secondary legislation will be subject to the negative resolution procedure in Parliament, except for regulations that define the type of contract that may have the protection of the Bill. For those regulations, the affirmative procedure is required.

As a separate matter, clause 9 amends the Justices of the Peace Act 1997, so that revenue grants may be made to local authorities to meet payments under partnership contracts in respect of magistrates courts. For technical reasons, the capital finance rules currently classify such payments as capital expenditure

The details of the Bill reflect discussions and close working with interested parties, including the Local Government Association, the public-private partnerships programme and lawyers representing banks and contractors. We have now begun further consultations on the coverage of regulations. If those consultations result in proposals for amendments to the Bill, we shall consider carefully whether to bring them before the House. There will be a third round of consultations on the details of the secondary legislation once the broad coverage of the regulations is established.

Prompt action is needed, because private finance schemes in the local authority sector have been slow in developing. Indeed, no scheme has so far reached the stage at which actual construction work has begun. The present system, for controlling local authority capital finance and the use of privatefinance for capital purposes, is laid down in the Local Government and Housing Act 1989 and subsequent regulations. It is an ingenious and rigorous system. In its original form, it put big obstacles in the way of local authorities that wished to pursue partnership deals. Such deals would have counted as "credit arrangements", the full capital cost of which would have had to score up front against the authority's capital resources. Pressure on local authorities' capital resources was such that, effectively, partnerships in local government were a non-starter.

In 1995, the previous Administration began to amend the system to facilitate partnership arrangements. Last October, they made regulations that relaxed the requirement for "credit cover" on deals with the private sector that met a test of adequate risk transfer. Also last October, the then Government announced that revenue support would be available for local authorities' payments towards such partnership schemes. Offering that financial assistance was right, because the system of revenue support grant already helps local authorities to meet the costs to them of conventional borrowing. If they are to procure the use of assets through partnership arrangements, they will incur comparable revenue costs.

The then Administration announced revenue support for the past financial year to the tune of £50 million of investment costs, none of which was actually spent. They also announced support for £200 million of investment this year. The resources are available; we need to remove any obstacle to their being taken up.

This is a necessary measure. The previous Administration were committed to the private finance initiative, and I would expect Opposition Members to support the current Bill.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

Opposition Members believe in public-private partnerships. The Minister is seeking to encourage private involvement in Government matters, but how would that work in practice? There is, for instance, a strong suspicion that private sector involvement in English Heritage's imaginative scheme to preserve Stonehenge and make it an exhibition caused it to be turned down by the Secretary of State for National Heritage. It is suspected that some Ministers do not believe in private sector involvement. Can the hon. Lady comment on that?

Photo of Hilary Armstrong Hilary Armstrong Minister of State (Local Government and Housing), Department of the Environment, Transport and the Regions, Minister of State (Department for Environment, Transport and the Regions) (Local Government)

I speak on behalf of the whole Government when I say that we do support public-private partnerships. The Bill deals with them in local government, and local government already has a proud record of effective public-private partnership deals that have been conducted in a manner different from the way in which, according to the former Government, private finance initiative deals have been conducted in the past.

The Bill is a specific short measure intended to address the problems that have arisen in the securing of contracts that have the confidence of both the public and the private sectors, and it is on that basis that we wish to act. I am afraid that other issues must be taken up with relevant Secretaries of State, but, as I have said, the Government as a whole are committed to effective public-private partnership arrangements.

I intend the Bill to be in force by November. Speed is important to minimise any delay in local authority projects where contractors want to hold back from entering into contracts until the Bill is in force, although it contains provisions that will allow it to bite on contracts entered into from the date of its introduction. I commend it to the House

Photo of Christopher Chope Christopher Chope Shadow Minister (Environment, Food and Rural Affairs), Vice-Chair, Conservative Party 3:54 pm, 23rd June 1997

I thank the Minister for her kind remarks. In reincarnated form, my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) and I look forward to plenty of enjoyment as the hon. Lady and the Government face the consequences of dashed expectations among their local government supporters.

Although I have spoken in Committee, this is the first time that I have spoken in the House since my election on 1 May. I begin by paying tribute to the hard work of my predecessor, Mrs. Maddock, for her constituents following her by-election victory in the previous Parliament. She was my councillor when I was the Member for Southampton, Itchen and I now enjoy the responsibility of being her Member of Parliament. Her commitment to local government issues can best be judged by the fact that during the general election campaign, which ran in parallel with Dorset county council elections, many constituents thought, albeit mistakenly, that she was their county councillor.

When I was first elected as a councillor in 1974, the aldermanic system still operated and the person whom I defeated immediately became an alderman. People in Christchurch await with interest to know whether Mrs. Maddock will be appointed to the parliamentary equivalent of aldermanic status—membership of another place.

The Opposition support the generality of the Bill. I understand that we probably would have introduced a Bill in not dissimilar terms if we had been in government. The Bill complements the Local Authorities (Capital Finance) Regulations 1997, which were introduced by the outgoing Conservative Government to facilitate partnerships between local government and the private sector.

We welcome the Government's conversion to the private finance initiative. I am the first to admit that the Minister's conversion goes back many months if not years. In the case of the Secretary of State for Health, we await hard evidence that there has been such a conversion. When he was Labour's spokesman on the environment, he criticised the Conservative Government and emphasised the limits of the PFI approach. Old Labour used to regard the PFI as the son of privatisation and, therefore, to be despised. However, it seems that such attitudes have changed and the Opposition welcome that.

The publication today of the conclusions of the Bates review of the PH is encouraging. One of its conclusions states: The Government should take an early opportunity to make a confirmatory announcement of its commitment to PFI as one method of conducting successful public-private partnerships. My hon. Friend the Member for Gosport (Mr. Viggers) questioned the Government's commitment to the PFI, and he can draw support from the implication in that conclusion from the Bates review that up to now the Government have not confirmed their absolute commitment to the PFI. The Minister for the Environment is quoted as having said on 16 May in relation to design, build, finance and operate schemes: I do think there are problems with DBFO. One of which is finance. The operator provides the money up front, but the payback period is very considerable and that is a constraint on future public expenditure. The Minister was expressing the underlying Government doubts about the PFI. Far from reinvigorating the PFI, the Government have allowed it to drift for many weeks. Seven weeks after peremptorily sacking the chairman of the private finance panel, the Government have still not appointed anyone to take charge and drive the PFI process forward. There will now be yet more delay before a chief executive is appointed to head the new Treasury private finance task force. Only last week, the Minister of Transport announced, not to the House in a statement, which he should have done, but in a written answer, a moratorium on new road building projects, putting DBFO schemes at risk—so much for speeding up the PFI

. Today's announcement is yet another example of the Labour party behaving in government as if it were still in opposition, rearranging the deckchairs without making any substantive improvements. It beggars belief that the way to inject greater urgency into the PFI should be to give the public sector more control and to put the Treasury in charge.

Photo of Hilary Armstrong Hilary Armstrong Minister of State (Local Government and Housing), Department of the Environment, Transport and the Regions, Minister of State (Department for Environment, Transport and the Regions) (Local Government)

Would the hon. Gentleman like to remind the House how many PFI hospital buildings were in the pipeline and how many the previous Government managed to secure? My information is that not a single hospital was agreed, and that means that no building has taken place in the national health service in the past three years.

Photo of Christopher Chope Christopher Chope Shadow Minister (Environment, Food and Rural Affairs), Vice-Chair, Conservative Party

I am not an expert on all the hospital projects, but I do know this: annexed to today's Government statement is a list of PFI projects that are under way and in process as a result of Conservative Government policies. From recollection, I think that the value of those projects extends beyond £700 million, which is a large investment and a tribute to the previous Government's work.

We know that there was a hiccup over some of the NHS projects, which was why a special Bill was drafted and brought in by the previous Government—[Interruption.] It was prepared by the previous Government for introduction and it has been adopted by the present Government. I have no complaint about that, but let us not rewrite history. Indeed, the list of the PFI deals signed before April 1997, which was released by the Treasury, shows that the PFI was making good progress. All that has happened in the past few weeks is that some PFI projects have been put at risk and others have been put on hold.

The Minister of State implied that the problem that the Bill addresses is a lack of private sector confidence, and that she wishes to restore it. We should not allow this occasion to pass without reminding ourselves of some of the reasons why that private sector confidence was lost. It was lost because of the behaviour of councils under the control of old Labour. In the late 1980s, Hammersmith and Fulham council engaged in some £6 billion of money-market gambling, speculating with its ratepayers' cash, but that council was acting ultra vires and, as a result, it avoided having to pay back more than £100 million that it owed to banks and financial institutions, after making massive losses in interest rate swaps and option deals. Not surprisingly, having had their fingers burnt in that way, the banks and financial institutions were loth to lend to local authorities just on their say-so. There were other cases involving guarantees by local authorities, which, again, were found to have been entered into ultra vires.

Will the Minister confirm that the entry into capital market transactions on a speculative basis by local authorities remains, despite the Bill, ultra vires and that such transactions cannot be certified by the procedures as set out in the Bill? Will the Government confirm that the Bill does not alter the fact that local authorities can go bankrupt? Will the Minister confirm that central Government are not and will not be a guarantor of the debts of local authorities?

The Bill refers to a minimum length of contract to which its procedures will apply. Will there also be a maximum length of contract, because some of the deals that are being contemplated potentially involve fettering the discretion of councils over many decades?

The Bill does not vest local authorities with powers of general competence, but perhaps the Minister will tell us what the Government's plans are in that respect. Many Labour local authorities have been seeking such powers for a long time, and they will obviously be disappointed that the Bill does not legislate for them.

What is the scope for local authority guarantees to financiers? On a number of occasions, local authorities have been tempted to give guarantees for the performance of partnership deals to financiers and thereby impose on their taxpayers the contingent liability in respect of those guarantees. We know that the Treasury is reluctant to give—indeed, wholly opposed to giving—such guarantees in relation to general Government expenditure unless those guarantees count against the public sector borrowing requirement, but are the Government minded to provide a relaxation of the capital expenditure rules under section 40 of the Local Government and Housing Act 1989 in respect of guarantees given by local authorities? At the end of the day, the issue is the extent to which taxpayers will be protected against the actions of their councils when they act ultra vires.

There are many questions for the Government to answer in this debate or perhaps in more detail in Committee. Will the Bill ensure that there is a mass of new local authority partnership schemes? Certainly, we hope that that will be the case. Indeed, that is why provision was made for £50 million in the past financial year and for £200 million this year. We hope that those schemes will be brought forward.

The Bill will certainly allay the concerns of private sector financiers about local authorities acting ultra vires, but will it remove local authorities' suspicions about the need for risk takers to have a chance to make profits? One of the biggest constraints on partnership deals between local government and the private sector has been the feeling of many local councillors that they can enter into a deal, pass the risk to the private sector and expect the private sector to accept that risk without taking any profit in the event of the deal proving successful. Unless there is a change of attitude about that aspect of partnership deals, I am pessimistic about the overall outcome.

We support the Bill, however, and wish it a fair wind. We are as keen as the Minister to ensure that it reaches the statute book. We hope that in Committee we shall receive the answers to a few more questions.

Photo of Professor Ross Cranston Professor Ross Cranston Labour, Dudley North 4:07 pm, 23rd June 1997

I welcome the Bill. Unfortunately, the hon. Member for Christchurch (Mr. Chope) drifted substantially from the subject matter, and I am afraid that some of his points were tendentious to say the least. It is a technical Bill, but it has very important practical implications. Perhaps I could sketch some of the commercial background.

There is always a difficulty in commercial transactions when a party deals with an entity. It may be a problem of the authority of those purporting to contract on behalf of the counter-party, but there is also a question of capacity. That problem arises with companies, trusts and co-operative bodies. I hope that the House will at some point revisit the problem that arises when bodies contract with trusts. Trusts are big business, and have an important role in the financial world.

A number of years ago, the problem with company contracts was dealt with: statute abrogated the ultra vires rule, and the doctrine of constructive notice was modified in relation to corporate contracts. All this was to be welcomed, but, unfortunately, there was and is a problem with the local authorities, and the problem is that of ultra vires.

My hon. Friend the Minister mentioned several high-profile cases that have occurred since 1991, as did the hon. Member for Christchurch. Those cases concerned transactions involving derivatives and guarantees. The decisions led to a reluctance on the part of financial institutions to deal with local authorities.

The leading case was that involving Hammersmith and Fulham council. Many were critical of that decision of the House of Lords, sitting in its judicial capacity, believing that it was commercially unrealistic and that the Court of Appeal had adopted a more commercially realistic approach, distinguishing between debt management and speculative transactions.

The decision had a chilling effect on the transactions entered into by local authorities and the extent to which financial institutions dealt with them. Unfortunately, it led to a fall in the reputation of the City of London. Many European banks became disinclined to deal with local authorities. They could not understand why English law, which is generally conducive to commercial transactions, was unfavourable in this case. It was no consolation when, as a result of a series of cases following that decision, the courts decided that money paid over was recoverable on restitutionary principles, and when local authorities gave guarantees to banks.

The effects of the decision had to be dealt with. Fortunately, that led to the establishment of the Financial Law Panel. I commend the work of that body, established and supported by major financial institutions in the City of London and by major law firms. I have had a small association with its activities. It has done sterling work on clarifying English law to give greater certainty to commercial transactions, thereby enhancing the reputation of the City of London.

The Financial Law Panel prepared a short report on the problem, as a result of which the Bill emerged. I shall not go through the details of the Bill. As my hon. Friend the Minister explained, it creates a safe harbour, and there is a self-certification process. The Bill does not exclude the possibility of judicial review, permitting the courts to review contracts that have gone through the self-certification procedure.

It is generally accepted that the Bill will be conducive to financial transactions. The consequences of the swaps decision of 1991, which deterred foreign banks from dealing with local authorities, will be reversed. The idea behind the Bill is good, and has been welcomed by the markets. The Bill will work, and when it is explained to financial institutions, it will provide a boost to their willingness to participate in private finance initiatives and other transactions. I support the Bill.

Photo of Mr David Rendel Mr David Rendel Liberal Democrat, Newbury 4:13 pm, 23rd June 1997

It is pleasant to find you still in the Chair, Madam Speaker, and for once to address you and not one of your Deputies.

At the start of the debate, mention was made of resurrection. It is fair to say that, in a sense, the Bill attempts to give the kiss of life to the private finance initiative. As the Minister said, under the Conservative Government, the PFI had become more than a little moribund. I am sure that hon. Members on both sides of the House welcome an opportunity to ensure that there is still life in the PFI, so that it can continue properly to be of use to local authorities and other government bodies.

In principle, local authorities should be given the opportunity to use the PFI or to contract out services. Where possible, they should be given the option to go their own way in providing the services their electors require. However, for one particular reason, the PFI is likely to prove rather expensive.

Inevitably, when risks are moved from the public sector to the private sector, higher borrowing costs are likely to be involved. Therefore, it would not be sensible for any public body to finance its operations privately or through a contractor unless other efficiencies were involved. In some cases, other efficiencies may be involved in contracting out to the private sector.

In local government terms, however, there is another problem which has been mentioned in the debate, and which is the very cause of the Bill: an extra risk is involved because of various ultra vires rulings that have been made in respect of local authorities. That increases the risk, and can serve only to increase the cost of involving the private sector, and in some cases to make it impossible.

As the Bill attempts to overcome those difficulties, we join the Conservatives in not opposing it. However, perhaps unlike the Conservatives, had they remained in government, we would not have introduced such a Bill had we been the governing party on 1 May, as we believe that an alternative way of overcoming the problems would have been preferable. We support the introduction into local government of a power of general competence, which has already been mentioned by the hon. Member for Christchurch (Mr. Chope). Such a power would probably make the Bill unnecessary.

Before the election, the Labour party apparently spoke in favour of a power of general competence for local government. Therefore, it was disappointing that there was no mention of such a power in the Labour manifesto. However, it is contained in the European charter of local self-government. Of all the moves that the Government have made since 1 May, I would commend above all the signing of that charter.

Article 4.2 states: Local authorities shall, within the limits of the law, have full discretion to exercise their initiative with regard to any matter which is not excluded from their competence nor assigned to any other authority. If the Government fulfil their apparent wishes in signing the charter, and introduce a power of general competence for local government in the United Kingdom, the Bill may be short-lived. Were a power of general competence to be introduced, the Bill would rapidly become unnecessary.

I was delighted, therefore, that the Under-Secretary of State for Northern Ireland said in another place that the Government intend to introduce a power of general competence in Northern Ireland. That is good news. He was quoted to that effect in the Municipal Journal this week.

I hope that that legislation will be introduced and will be rapidly followed by similar legislation for this country. A general power of competence would be a much better way to overcome the problems of the PFI, and it would also be beneficial for local government in many other ways. All three parties in local government have pressed for such a power, including the Labour party through the Local Government Association. I hope that the Minister will accept that point, and ensure that the Bill, welcome though it is in the short term, becomes unnecessary in a few months.

Photo of Fabian Hamilton Fabian Hamilton Labour, Leeds North East 4:19 pm, 23rd June 1997

I ask for the indulgence of the House, as this is the first time that I have had the honour of speaking in the Chamber. As the Member for Leeds, North-East, I follow the Conservative, Timothy Kirkhope, who rose to the rank of junior Minister at the Home Office. He worked hard for his constituents in the 10 years that he represented the constituency. His predecessor was the late Sir Keith Joseph, the distinguished parliamentarian and architect of what became known as Thatcherism. He represented the constituency for 31 years, and held many high offices of state.

I wish to quote another predecessor this afternoon. The last Labour Member to represent Leeds, North-East was the great Alice Bacon. In the conclusion of her maiden speech on what became the National Insurance (Industrial Injuries) Act 1946, she said: We must remember that this Bill is to deal with the ill, the crippled, and, probably. the depressed, and that, for these people, an ounce of warm humanity is worth a ton of cold legality."—[Official Report, 10 October 1945; Vol. 414, c. 296.] I hope that that sentiment will guide this Parliament.

I have the great privilege of representing a constituency of diverse places and communities. It stretches from inner-city Chapeltown to the stately home of Harewood house. It encompasses the largest Afro-Caribbean community in West Yorkshire, a large Sikh and Muslim population, the largest Jewish community in Yorkshire, which has been well established since the early 19th century, and representatives of the growing Vietnamese, Chinese, Greek, Polish, Latvian, Gujerati Indian, Iranian and African communities that make up the most ethnically rich of Leeds constituencies.

I am also fortunate to have in my constituency the magnificent Roundhay park, one of the finest and largest parks in any European city, with its splendid tropical house and butterfly garden. It is a tribute to the work of Leeds city council over many decades, and the largest tourist attraction in England after Hampton court.

Leeds has one of the fastest growing economies of any city in Great Britain, with more jobs being created than in any other city. One reason for that is the partnership between the Labour-controlled local authority and the business community, which has brought investment by many new firms, many from the financial sector, to the city. I pay tribute to three leaders of Leeds city council, two of whom are now Members of Parliament, for the part they have played in the city's economic regeneration.

Economic good fortune and prosperity do not necessarily bring investment in public housing or schools. The Local Government Finance (Supplementary Credit Approvals) Bill that we discussed on Tuesday will have important consequences for the city of Leeds, especially Leeds, North-East. Social housing is more than just the local authority provision of low-cost rented property. There is a whole host of different providers in the many small independent housing associations.

In Leeds, we have Leeds Partnership Homes, which is a collaboration between the local authority and the housing associations. It has worked for the benefit of those citizens who seek quality housing for a reasonable rent. Organisations such as Unity Housing in Chapeltown have provided good quality low-cost homes for the Afro-Caribbean community, and Leeds Jewish Housing Association, with its 1,000 tenants and 415 properties—many of which are sheltered and specialist homes—has served the Jewish community of Moortown very well.

Leeds has more than £70.4 million in the bank from council house capital receipts, with an estimated £10 million coming in from new sales each year. The release of this sum on a phased basis will do a great deal to refurbish and regenerate old stock, which, according to the housing department of Leeds city council, will need £485 million in the next few years just to bring all properties up to modern standards.

The previous Government's borrowing approval for capital spending was £9.6 million in 1997–98 for the whole of the city of Leeds. In my constituency, there are more than 6,000 council homes, for which identified necessary improvements will cost about £37.8 million. The extra investment that the Bill will generate will be invaluable to the tenants I represent.

In addition to the much-needed improvement of the housing stock in my constituency, the spending of capital receipts will inevitably generate much-needed employment. In Chapeltown especially, the level of male unemployment is one of the highest in Yorkshire. I am confident that the many job opportunities that will result directly from the enactment of this short Bill will benefit my constituents.

In common with those of most local education authorities, Leeds LEA's schools are in great need of building improvements. Leeds is the second largest LEA in England, and has devolved almost 93 per cent. of its budget to schools in the city. That may well be the reason why there are only two grant-maintained schools in Leeds, out of more than 300 schools in total.

As well as the local management of school budgets, the LEA has devolved some capital spending, a policy which has been very popular among schools and their governing bodies. But even this is not enough to counter the huge backlog in spending on school buildings, many of which are in a poor state of repair. The Bill will enable many more private finance initiative schemes to go ahead in areas where they are much needed.

Leeds city council has established a policy of working closely with the private sector over a number of years, especially through organisations such as the Leeds Initiative and various sector initiatives. The PFI, if properly carried out, and with safeguards for public and private interests, will allow the rebuilding of such dilapidated school buildings as Cardinal Heenan Roman Catholic high school in my constituency. Other schemes could benefit schools such as Upper Wortley primary school and Wortley high school, which could be redeveloped using surplus land that could not be used for school playing fields, perhaps as a trade-off for part of the construction costs of the new building.

In the end, it is the welfare and the quality of education for our children which count, and I welcome anything that will improve that education. Used properly, the PH will greatly enhance our schools and buildings, and will assist staff in concentrating on the job of educating, rather than being distracted into site management, as so many senior school staff are currently forced to do.

The combination of this Bill and the Local Government Finance (Supplementary Credit Approvals) Bill will, I hope, lead to a renaissance in local government, which has been so starved of capital during the past 18 years. I commend the Bill to the House, and I hope that its swift passage will allow the rebuilding of schools in Leeds and all over the country, so that we deliver our priority election pledge, education.

Photo of Paul Beresford Paul Beresford Conservative, Mole Valley 4:28 pm, 23rd June 1997

I congratulate the hon. Member for Leeds, North-East (Mr. Hamilton) on his maiden speech. They are always extremely difficult, and making them during a quiet Bill, when antagonism is not anticipated, always helps. I also thank him for his praise for his predecessor, and for his predecessor's predecessor.

In the same vein, the Minister referred to the resurrection of my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) and my hon. Friend the Member for Christchurch (Mr. Chope) on the Front Bench. My hon. Friend the Member for Christchurch in particular is experienced in local government. We have shared tables and arenas in the past, and it looks as if this is to continue.

In a funny way, this is in effect a maiden speech for me. In the last days of the previous Parliament, the boundary commission decided to reduce the number of seats in Croydon from four to three. I lost out, and went looking for another seat. I was delighted to be selected and elected for the seat of Mole Valley.

My predecessor, Kenneth Baker, is extremely well known and has had a distinguished career. He was particularly effective, well liked and popular in Mole Valley, which he had served since 1983. To us, he is one of the stars of the Thatcher Government. In the limited time available, I shall touch on two areas for which he is particularly remembered. The media remember him more as a Conservative Central Office magician, who managed to pull tremendous successes—sometimes they were displayed as greater than they were, but I must be cautious in saying that—out of a hat when everyone was anticipating defeat. The second area was as Secretary of State for Education. It is now accepted across the board, and, I believe, on both sides of the House, that he laid the foundations for modern education. He introduced the core curriculum and testing, which, in spite of the hoo-hah, nonsense, complaints, screaming and so forth by all and sundry at the time, have been accepted as the right move, and as a basis from which the previous Government and the present Government seem to have moved forward.

Interestingly, Kenneth Baker had a career in politics, in government and as an author. He also had an extremely successful career—I was going to call it valuable, but that is a difficult word—in business, but last week he was tempted back, and we now have his presence in another place. I am sure that, at least on the Conservative side of the House, his comments and contributions will be recognised and accepted.

I am delighted and proud to represent the Mole Valley people. The area is superb. It is the epitome of England's green and pleasant land—helped at the moment by the constant April showers in the wrong month. We have two delightful English country towns in Dorking and Leatherhead. Both need careful and sympathetic regeneration—that goes particularly for Leatherhead. I am afraid that one or two small voices in the area see conservation as stagnation. The area has not been assisted by the Liberal councillors, but they are slowly being moved off the scene and replaced with Conservatives.

One of the key aspects of Mole Valley is that it is green belt, and that is extremely precious to the people there. In spite of that, the area is highly residential. I have mentioned the two main towns, but there are dozens of villages, all of which are exquisite, and some well known. They range in size from Bookham and Ripley to some picturesque small villages—Abinger Hammer is a famous one.

All the villages have their post office and general store—or almost all—and they will benefit from the previous Government's move on the business rate and rural areas and villages. Like any good English village, they all have at least one pub—probably more. I can recommend just about every single pub in the area to those of us who are prepared to stagger down there when the House releases us and we have a summer recess.

A large percentage of people in the area are commuters. We have a good rail service through to Dorking, Leatherhead and Effingham Junction, which is showing the benefits of privatisation in spite of a few union difficulties at the moment—I am sure that those will be resolved. In addition, we have a good network of main roads, A roads and motorways, which are both assets and threats to the local people, and are being watched carefully—the same applies to Gatwick airport.

Due to Surrey county council's long history of Conservative control, the education standard was high. The council has now returned to Conservative control, and we will move back to a high education standard and resulting low unemployment.

Many of the major contributors to the local economy and local employment in this country are extremely hard working, and potentially quite wealthy, people in the area. There has been a tendency, especially in some newspapers, to sneer at those people, but I believe that they should be encouraged and congratulated, because they stimulate the economy and create employment. I shall wait until 2 July to see whether they will have received that encouragement.

The Bill is small and necessary, and has come clothed in flag-waving by the Labour party, which has suddenly decided that it accepts the private finance initiative. It has been extremely slow on partnership with the private sector, and had a knee-jerk reaction to competitive tendering. I suspect that, if some Labour Members realised what we were talking about, especially where Labour local authorities are concerned, they would not touch it.

That explains the difficulty that many firms have had in introducing the PFI in many local authorities. The previous Government changed the ethos and thinking, and adopted and adapted the rules. There have been complaints about the lack of local government finance, and the reality of the tight budgets for local authorities has forced many difficult left-wing authorities and councillors suddenly to realise the benefits of PFI. Without it, many of them would have continued with the same old procedures, thinking that they knew best and not accepting that, quite apart from the financial benefits of PFI and competitive tendering, the innovation of the private sector was a gem.

My hon. Friend the Member for Christchurch spoke of some of the successes. Considerable benefits have come against the background of suspicion and difficulty and of a change to a new system that even the private sector was cautious about. We have new prisons, trains and roads, and about £7 billion-worth of PFI schemes in the offing, including hospitals, one of which I understand has already been started.

The private sector was particularly cautious about local government. My hon. Friend the Member for Christchurch touched on a few flag-wavings—instances in which local authorities had frightened off the private sector. If I were in local government now, considering the private sector, of if I were in the private sector considering local government and PFI schemes, I would be extremely cautious about schemes with many of the Labour local authorities, as their attitude often belies the face that the Minister put on it in her opening speech.

Fortunately, the Local Government Association has a dedicated unit. That at least shows that some councillors are accepting the PFI, and moving in the right direction. The Minister was right to say that one case hit confidence extremely hard, and the Bill must be seen in that light.

I have one or two points of caution, if not of concern, about the Bill, and I hope that Ministers will introduce changes or regulations in Committee. I am concerned about some of the regulations being under negative resolution, and I hope that the Minister will review that. The area of concern is the certificated contract provisions. As the Bill stands, those provisions could be abused.

Any change in legislation that restricts the power of the courts or the district auditor needs considerable safeguards. Those safeguards are not apparent at this stage, and I seek assurances that they will be put in place and made effective, either in the Bill or in regulations, preferably requiring affirmative resolution.

As many hon. Members know, and many people outside realise to their discontent, the twisting and turning of some local authorities is legendary, and the Bill as it stands could provide enormous opportunities for that. The district auditor must be able to act prior to the council certifying any contract. That means that the auditor must have a fully disclosed copy of the contract well in advance of the council's decision. I recognise that one could go to the court afterwards, but it would be more appropriate to take the action beforehand and allow the district auditor to react to it.

It would be a further safeguard if the monitoring officer or the local authority's director of finance were required to confirm the probity of the contract. Furthermore, I assume that certification will apply only to long-term contracts, where the value of the contracts and that of the assets are above a certain considerable minimum. Finally, although this may seem ultra suspicious, experience of the ways of some councils is such that I hope that the Bill will restrict the assets to be provided to those that are reasonably necessary for the service concerned with the contract being considered.

Such matters will be discussed in Committee, and, in general, I accept the need for the Bill, in spite of the flag-waving that went with it. There must be an opportunity for public services to be provided by the private sector, which has the necessary expertise and lateral thinking. We should recognise the points that have been made and carried through successfully by many Conservative councils, which regard themselves as enablers rather than necessarily as providers. I suspect that, under this Government, the tendency will be to roll in the opposite direction until such time as councils progressively return to Conservative control.

Photo of Paul Burstow Paul Burstow Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health) 4:40 pm, 23rd June 1997

On the face of it, the Bill is a technical measure that dots some i's and crosses some t's on contract law and regulations, but I believe that it is more important than that. The Government's approach in some ways bodes ill. It gives us a glimpse of a centralising tendency that I thought had gone when the Conservatives went into opposition on 1 May. Some aspects of the Bill show that centralisation is still alive and kicking in the Government.

I have several fundamental and practical concerns. No additional powers are granted to local authorities. As I understand it, it takes away the rights of council tax payers in the event of a council acting outside its powers.

Two weeks ago, the UK ambassador to the Council of Europe signed the declaration of local self-government. I echo the comments of my hon. Friend the Member for Newbury (Mr. Rendel) in welcoming that important step by the Government to acknowledge the essential role of local government in Britain. However, more than words are necessary. We need action to turn those important statements into something practical on the ground.

As a local authority member for the past 11 years, I have seen at first hand how the previous Government lost their local government base and then sought to replace local democracy with ministerial regulation, direction and ever-tighter financial controls. The new Government must sound a new note for local government. While some recent ministerial speeches suggest that they desire to create a new relationship between central and local government, we remain to be convinced that that is what will come about. Even in the darkest days of the last Government, local government was innovative, inclusive and able to respond to the needs and aspiration of local communities. Local government does not need more duties imposed on it. The news that Ministers propose to consult their colleagues in local government about the scope of a new duty to promote economic, social and environmental well-being misses the point entirely. Local government needs a power of general competence. Such a power would make the Bill unnecessary. It would help us to rejuvenate local government and give substance to the Government's rhetoric about community leadership, and to the Liberal Democrats' commitment to the idea of local government's role as the leader in the local community.

Before the general election, a Select Committee in the other place investigated the relationship between central and local government and produced a powerful and persuasive report entitled "Rebuilding Trust". The report must not be allowed to gather dust and its recommendations should form the basis of legislation. It recommended a new statutory power of local competence, enabling an authority to act in the interests of the local community within the limits of financial prudence but without a need to be certain that no other powers are available". That seems to me to be the way forward, and it is a shame that the Bill contains no such proposals.

The Bill targets private finance initiative contracts; it tries to make a bad idea work. If the Government think that the PH is the answer to all their—and local government's—financial difficulties, they must have been asking a strange question. Throughout the 1980s, creative finance in local government—lease-back and deferred purchase arrangements—was pilloried by the Conservative Government. Their reason for such attacks—that they put costs on to future generations for providing today's services—seems odd when we consider what the PFI does. By simply changing the words, it gives credibility to something that was attacked when local government did it in the past.

The PFI is a way of circumventing strict Treasury rules. The problem is not the Treasury rules but the mindset that regards them as God-given and unchangeable. I hope that something can be done about that. I welcome the Minister's statement about the creation of a task force to examine the PFI. I hope that it will question the basis of the Treasury rules, how they treat capital expenditure and the way in which they confine and restrict unnecessarily.

I have several practical concerns. My research suggests that there are still anxieties in the City about how the Bill will assist PH contracts coming into being. It may cover situations such as that faced by my local authority a year or so ago with Morgan Grenfell and the Wellesley housing association, but it does not cover contracts such as those that involve the transfer of residential homes, where the contract provides only services, not assets.

There is also the problem of length of time and the lack of a financial cut-off. I hope that the Minister will respond to this. For example, a large contract that lasted for less than five years could have substantial financial implications, but a contract that runs for a long time, such as social services spot purchase contracts, could have only a small financial implication. As I understand the measure, and I look forward to being corrected if I am wrong, the compulsion to certify such contracts would increase the local authority bureaucracy involved in dealing with the documentation and in the democratic process. Perhaps in Committee we will be further enlightened about that.

Despite its accompanying explanatory notes, the Bill has practical implications for local authority officers who certify such contracts that need to be clarified. The Minister mentioned the Waltham Forest case, in which individual officers were, I believe, found liable. The officers who may become responsible for certifying contracts are worried about whether they will be caught by the Bill. A monitoring officer expressed concern to me about the increased cost of having constantly to go to counsel for advice on signing such certificates.

Finally, what checks and balances will apply to the compensation arrangements negotiated between local authorities and businesses set out in clauses 2 and 3? Will the Minister spell out what rights of challenge will be available to enable the reasonableness of arrangements to be tested? If he will not, there will be serious concern that private interests will be protected by the Bill at the expense of public interests. Clause 7, as I understand the explanation of it, means that the taxpayer would always lose out, and that cannot be right.

I believe that the House should be debating legislation to give local government the power of general competence. Measured against that radical proposal, I have to say that the Bill is a timid mouse of a measure.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

It is most unusual for any hon. Member to speak twice on Second Reading, but, with the leave of the House, I call Mr. Chope.

Photo of Christopher Chope Christopher Chope Shadow Minister (Environment, Food and Rural Affairs), Vice-Chair, Conservative Party

Thank you, Mr. Deputy Speaker. As the hon. Lady says, there are unusual circumstances today. I am grateful for the indulgence of the House.

I do not intend to comment on what hon. Members have said in the debate other than to congratulate the hon. Member for Leeds, North-East (Mr. Hamilton) on his excellent exemplary maiden speech. On such occasions it is always a good idea to try to find some common ground, and both he and I have the privilege of having a parent who was a circuit judge. I do not know whether his mother was as horrified as my father was when I chose politics as a career; perhaps we will find out in due course.

The hon. Gentleman paid a fitting tribute to his predecessor, Timothy Kirkhope, whom we miss very much on the Conservative Benches. I had hoped that when I came back to the House he would be among my colleagues. The hon. Gentleman also paid tribute to the great and late Lord Joseph—a tribute which was complemented by that made by my hon. Friend the Member for Mole Valley (Sir P. Beresford). Indeed, it seems that the hon. Gentleman is following a fine tradition of Members for Leeds, North-East. He obviously conducted his research to the full, because he was able to discover that, many, many years ago, there was someone who had represented the Labour party in that constituency just after the war.

As Parliament progresses, I hope that the hon. Gentleman will not be too disappointed that the expectations that he raised in his maiden speech have not been realised. I was horrified to hear of the extent of housing dereliction that seems to have arisen in Leeds as a result of the many years during which the city council has been controlled by the Labour party. If the hon. Gentleman wants a good example of partnership schemes that work, he should consider the wholesale voluntary transfer of housing stock to bring in and leverage the support of the building societies and the housing associations. Such schemes have worked extremely effectively. It is a pity that the people who have run Leeds over the years have not had the imagination to pursue that type of scheme.

If the figures that the hon. Gentleman gave are anywhere near accurate they bear out the impossibility of squaring that amount of dereliction and need for refurbishment with the commitments so far made by the Government to invest in housing and undertake such refurbishment. The hon. Gentleman's interesting speech brought back to me the times when I visited Leeds as a housing Minister a few years ago.

My hon. Friend the Member for Mole Valley was extremely kind in his comments about me. My greatest responsibility when I ceased to be the leader of Wandsworth council was to ensure that I had an able successor. He excelled in that position beyond the wildest expectations of anyone, and he performed distinguished services as a Minister. Now the people of Mole Valley are the beneficiaries of his custodianship. He is a diligent Member of Parliament. He described the problems of Leatherhead and Dorking, and the fine achievements of his predecessor, and we look forward to his further articulate contributions on behalf of the people of Mole Valley. They are lucky to have him as their new Member of Parliament.

I was interested to note that my little tease of the Minister about what had happened to the power of general competence was taken up with a vengeance by the hon. Member for Newbury (Mr. Rendel). I hope that when the Under-Secretary replies he will make some reference to what has happened about that, because hon. Members will be awaiting with bated breath the outcome of the relevant deliberations.

As has been said, the Bill is short and reasonably straightforward. I hope that the Under-Secretary will answer the questions that have been raised in the time that is remaining. I estimate that to be just short of five hours, so that should give him plenty of time to respond.

Photo of Nick Raynsford Nick Raynsford Parliamentary Under-Secretary (Department for Environment, Transport and the Regions) 4:54 pm, 23rd June 1997

At one stage, I anticipated a potentially extremely long response to the debate, but, given the Opposition's decision not to divide the House, I am delighted that we have had a reasonably brief and focused debate on this excellent measure. I am therefore delighted that we will be able to bring our proceedings to an end rather sooner than many had anticipated.

I listened to the debate with great interest and I welcome the opportunity to respond to the various points that have been raised.

My hon. Friend the Minister opened the debate by explaining why we had introduced the Bill. I make no apology for briefly returning to those reasons. It is the Government's policy that local authorities should explore the scope for partnership with the private sector to achieve the best value for money in delivering services to the community. Following various high-profile court cases, doubts have arisen in the private sector about the powers of local authorities to enter into contracts for the provision of assets and services. Investors are concerned that they could suffer financially if local authorities are found to have acted ultra vires. The Government seek to end all doubts by clarifying local authorities' powers to enter into partnership contracts and by providing a means of reassurance for contractors through a simple and transparent certification procedure.

The Bill provides the framework in which authorities and the private sector can work together in confidence. It in no way undermines the rights of local taxpayers and auditors to challenge authorities where they have acted unlawfully.

The Bill should be seen in the context of the Government's policy to improve and streamline the private finance initiative and public-private partnerships. The Paymaster General, whom we are delighted to see on the Front Bench, has published today a summary and the conclusions of the review of the PFI conducted by Malcolm Bates. It sets out a clear agenda of action across the public sector to get deals delivered.

I welcome the hon. Member for Christchurch (Mr. Chope) back to the Chamber after a period of absence which is one of those accidents of political life that some of us have experienced. I also welcome him to his Front-Bench position and look forward to debating with him on future occasions. He paid generous tribute to his predecessor, Diana Maddock. Those of us who were involved in housing matters in the previous Parliament found her to be an extremely assiduous and positive contributor to debates. She also displayed such characteristics in her work in her constituency, which the hon. Gentleman acknowledged.

The hon. Gentleman offered his support for the generality of the Bill, but he slightly spoilt that good effect by claiming, with no justification, that the Government are not whole-heartedly committed to public-private partnerships. My right hon. Friend the Deputy Prime Minister advocated such partnerships years before the previous Government introduced the PFI model. I, too, argued strongly for new models for local housing companies to achieve private investment in co-operation with local authorities, again long before the previous Government advocated the PFI. I must therefore tell the hon. Gentleman that the Government will take no lessons from the Opposition either about the parentage of the public-private partnership model or about our commitment to achieving such partnerships.

The difference between the Opposition and the Government is that we are creating that model. I must tell the hon. Gentleman that the record of the previous Government was lamentable. Year after year, we heard forecasts of the new deals that would be achieved. We were told again and again that hospital contracts were about to be signed, but, at the end of the day, despite all their pledges and promises, that Government went out of office on 1 May without having signed a single hospital contract. That represented an abject failure to deliver on a policy that had bipartisan support—there was no political obstacle to it. That lack of progress was simply the result of the previous Government's failure and incompetence to drive through a policy which they said that they technically believed in.

Against that background, I find it hard to take seriously the hon. Gentleman's allegation that the new Government are not moving quickly enough. My hon. Friend the Paymaster General has moved with exemplary speed. His review of the private finance initiative was commissioned within a week of the new Government taking office. The report on it has already been received and has been published, within seven weeks of the new Government coming into office. That is exemplary speed, of which the private sector could justly be proud. It stands in marked contrast to the dilly-dallying and dithering of the previous Government, and their failure to deliver on the project.

The hon. Gentleman claimed that we had been delaying the appointment of a chief executive. The Government had no intention of anticipating Malcolm Bates's recommendations, because his was an independent review. To have acted in advance of it, in terms of the appointment of a chief executive, would have been quite improper. Now that Bates has announced his findings, which we have fully accepted and published, we are taking extensive soundings to identify the best person for the job. Malcolm Bates himself will be involved in the selection process, with senior Treasury officials. That is an indication of the Government's commitment and our speed in responding to the need for a better organised framework for public-private partnership.

The hon. Gentleman raised a number of detailed questions. He asked whether local authorities could go bankrupt. The Government do not guarantee local authorities. Authorities have substantial assets and revenue streams; therefore they are a good credit risk. That is not a matter which the Government can guarantee.

The hon. Gentleman asked whether the Government would make it easier for authorities to guarantee contractors' liabilities. The answer is simple. The capital finance regulations do not allow public-private partnership treatment to contracts that involve such guarantees, as that would involve no risk transfer. We see no reason to change that arrangement.

The hon. Gentleman asked whether there should be a maximum period for contracts, as well as a minimum period. In order to obtain the minimum lifetime cost of the assets delivered by the contract, it is necessary to ensure that there is an appropriate period for the contract. A period of 20 to 30 years is often needed, but it would be wrong to be too prescriptive and to insist that the maximum period should be 30 years. The matter must be examined properly and scrupulously, in consultation with private sector partners.

I congratulate my hon. Friend the Member for Dudley, North (Mr. Cranston) on an excellent maiden speech. [Interruption.] I apologise—he has already given his maiden speech, but he is a new Member and spoke extremely effectively and with great knowledge of the legal issues involved in partnership deals. He welcomed the Bill as a practical way of dealing with some of the difficulties, and he referred to the Financial Law Panel. That has been much involved in the thinking behind the Bill, as have other bodies, such as the 4 Ps—the public-private partnerships programme. They view the Bill as a positive step that should be welcomed in the financial markets. We are grateful for their help. I appreciate the contribution of my hon. Friend in an admirable speech.

The hon. Member for Newbury (Mr. Rendel) described our Bill as breathing the kiss of life into a moribund PFI. I agree with him. We seek to bring life back to a process that has not moved as fast as it should have.

The hon. Gentleman raised the issue of the power of general competence, which was also mentioned by other speakers. That may be the Liberal party policy, but the Government believe that there should be a different approach, with an emphasis on the power of community initiative—the power of authorities to pursue the economic, social and environmental well-being of their area. There must be limits; there is no question of local authorities having unfettered power to undertake any activity that they choose. That is not feasible in the real world. Although Liberal Members may believe that it is appropriate for local authorities to have their own defence programmes, that is fanciful. It could never be contemplated by any sensible politician.

Photo of Mr David Rendel Mr David Rendel Liberal Democrat, Newbury

I am not sure whether the Minister has yet read the European charter for local self-government. Article 2 refers, in effect, to a power of general competence. Of course, powers of general competence for local authorities are restricted by Governments in terms of those areas where there should not be competence for local government. It is clear, however, that there is a huge difference between giving local government power over any matter that is not specifically excluded by statute, and not giving local government powers until they are included by statute. That is what the power of general competence means, as the Minister ought to know.

Photo of Nick Raynsford Nick Raynsford Parliamentary Under-Secretary (Department for Environment, Transport and the Regions)

The hon. Gentleman gives it all away when he concedes that there must be a limit on the powers of local authorities. By doing so, he undermines the point that he made in his earlier contribution—that a power of general competence would make the Bill redundant. Of course it would not, because any statutory power is liable to judicial review.

The financial markets would still look for a safe harbour to protect their investment, even if there were the power of general competence that the hon. Gentleman advocates. He is dealing in an unrealistic assumption about the appropriate framework for the future of local government and of public-private partnerships. We are living in the real world, and we have presented practical proposals to tackle the real problems and to ensure that local authorities and the private sector can work together on a sensible and practical basis.

My hon. Friend the Member for Leeds, North-East (Mr. Hamilton) did make an excellent maiden speech, in which he revealed his detailed understanding of the needs of his community and a genuine commitment to his city. He rightly emphasised the importance of partnership as a vital ingredient in future for local authorities working with the private sector in tackling many problems, not least the one that he highlighted—investment in crumbling schools. He identified Cardinal Heenan school in his constituency, which will benefit as one of the pathfinder projects currently under way.

I congratulate the hon. Member for Mole Valley (Sir P. Beresford) on his successful change of constituency. He made the move just in time, because the Labour party now holds Croydon, Central, the seat that broadly approximates to the one that he held in the previous Parliament. His move to a safer place may help to ensure that he continues to make a contribution in the House in the years ahead

. The hon. Gentleman supported the Bill, but raised specific questions. He asked why so many of the regulations were negative resolutions. The answer is that the regulations amending forms of contract that can be certified are affirmative, because they change specific provisions. For others, a negative resolution is appropriate—for example, for the capital finance regulations.

The hon. Gentleman asked about the role of the auditor and questioned whether the auditor should have an opportunity to get involved before certification. We do not accept that that would be a sensible way forward, as it would fetter the auditor's discretion to take action if there were questions about the validity of the contract. We understand that if the hon. Gentleman serves on the Standing Committee that will consider the Bill, he will raise other detailed questions, to which we will respond appropriately in Committee. We welcome the fact that he broadly supports the principles behind the Bill.

The hon. Member for Sutton and Cheam (Mr. Burstow) made various criticisms of the Bill. He complained that it did not give new powers for local authorities. However, he misunderstands the purpose of the Bill. It is not intended to give new powers to local authorities. It is designed to overcome obstacles to successful public-private partnerships. If it sought to do what the hon. Gentleman wants, that would be way beyond its appropriate remit. We may return to the matter in Committee.

The hon. Gentleman implied that the Bill might take away the powers of individuals to challenge local authorities. As I have made clear, it does not do so. There will be an open power for individuals and the auditor to challenge a local authority where it appears that the local authority has acted improperly or ultra vires.

The hon. Member for Sutton and Cheam assumed that the Government view the public-private partnership route as the solution to all local government financing requirements. We do not, but it is a useful additional tool for creating opportunities to tackle problems effectively through partnership and to foster the spirit of partnership that is crucial not just to good relations between local authorities and the private sector, but to the regeneration of so many areas of our country that need a partnership approach as well as investment.

Photo of Paul Burstow Paul Burstow Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health)

Will the Minister clarify the way in which clause 7 will work in respect of the compensation arrangements in certified contracts? In cases where the courts make an ultra vires ruling, will the public be able to challenge the reasonableness of clauses in such contracts? If they cannot, taxpayers will continue to lose money as local authorities will be obliged to pay under the compensation clauses.

Photo of Nick Raynsford Nick Raynsford Parliamentary Under-Secretary (Department for Environment, Transport and the Regions)

The hon. Gentleman is getting slightly carried away by the technicalities of the subject. The legislation is designed to ensure that local communities do not have to meet additional costs. It establishes a sensible certification framework that will make sure that proper questions are asked before contracts are entered into. Our objective is to ensure that proper safeguards exist.

The private sector would not enter into contracts if it did not believe that it could recover the contribution that it expected to receive through the compensation route should a contract be ruled ultra vires. We have achieved the proper balance. We are ensuring that local authorities have the power to enter into contracts and we are establishing a more prudent framework for making contracts in order to safeguard public interest, while providing the equivalent of a safe harbour for the private sector so that it may invest confidently without fearing that it may be left with no way of recovering its investment. That is a sensible and practical way of addressing real, existing problems.

The hon. Gentleman also questioned the certification process, which he described as bureaucratic. It is not: it is a sensible provision that any sensible local authority will welcome. It will help to concentrate the mind on the process of reaching agreement on the contract. It will also ensure that the proper steps are taken to assess the probity and appropriateness of a contract so that the local authority may enter into it with confidence. That is the correct way to deal with partnership arrangements.

The Government believe that partnerships between the public and private sectors are the best way of raising the quality of services delivered to the community. On 8 May, my hon. Friend the Paymaster General announced an end to universal testing: the rule that all projects had to be tested for private finance potential. On the same day, Malcolm Bates was asked to launch a rapid review of the workings of the private finance initiative. As I have said, that review has been completed and accepted by the Government. The summary and conclusions of Malcolm Bates's review were published this morning, and we have lost no time in ensuring that speedy action is taken to reinvigorate the private finance initiative and establish a framework for successful public-private partnerships.

The main conclusion of the Bates review was that public sector structures must be simplified and responsibilities made clear. A new Treasury task force will be set up, covering both policy and central input on projects. That will end the confusion over who is responsible for what at the centre, while making the best use of available resources and expertise. There are clear recommendations for removing the barriers that have hindered the progress of many projects to date, including measures to keep down the costs of tendering for projects.

The Government will consider carefully with the task force and PPPP the implications of developing public-private partnerships in local government and how such projects should be encouraged. The Bill is an essential part of the framework for ensuring that projects can be taken forward successfully under the partnership approach. We do not want uncertainties about local authority powers to curtail an approach that can deliver innovative schemes at best value to local communities. I am pleased to commend the Bill to the House.

Question put and agreed to

Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).