Orders of the Day — Local Government (Contracts) Bill

Part of the debate – in the House of Commons at 3:54 pm on 23rd June 1997.

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

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.