rose to move, That the draft order laid before the House on 16 November be approved [10th Report from the Joint Committee].

My Lords, I commend to you this order under Section 70 of the Deregulation and Contracting Out Act 1994, as applied by Section 18 of the Local Government Act 1999. It confers on Transport for London powers to contract out its investment functions and highway functions in the same way that other local authorities can.

Under Section 1 of the Local Government Act 1999, Transport for London (TfL) is a "best value authority", defined as a "local authority" for finance purposes and as a "local highway authority" for road management purposes. "Best value authorities" have a duty to make arrangements to secure continuous improvement in how their functions are exercised, having regard to a combination of economy, efficiency and effectiveness. In meeting this duty, guidance from the Office of the Deputy Prime Minister states that "best value authorities" should challenge why, how and by whom a service is provided.

Other "best value authorities" outside the GLA group have already been granted powers to contract out investment functions and highway functions through three separate orders made under the Deregulation and Contracting Out Act 1994. These orders are: the Local Authorities (Contracting Out of Investment Functions) Order 1996; the Local Authorities (Contracting Out of Highway Functions) Order 1999; and the Local Authorities (Contracting Out of Highway Functions) (England) Order 2001. This order would allow TfL to contract out the functions that other local authorities may already contract out under those orders.

While the GLA Act made provision for the Deregulation and Contracting Out Act 1994 to apply to the GLA itself, it did not make such provision for TfL or other GLA functional bodies. This means that TfL is the only local highway authority unable to contract out its highway functions and, unlike all other local authorities outside the GLA group, is also unable to contract out its investment function. Because TfL does not currently have the full range of legal powers that are available to other "best value authorities", it can only discharge its investment and highways functions by in-house staff and is consequently restricted in its ability to pursue alternative means of discharging those functions.

Local authorities have been granted powers to contract out investment functions so that they can call on the expertise of specialists with the necessary experience, systems and understanding of the market, making them better suited to ensuring optimum return for investment. TfL's inquiries with brokers indicate that it could achieve higher returns than is currently the case through outsourcing parts of its investment functions, while keeping risks at a similar level to investment managed internally.

Similarly, TfL cannot contract out its highway functions in the same way that local highway authorities can. TfL is responsible for maintaining the 580-kilometre Transport for London road network and traffic control equipment within the GLA boundary. It cannot currently contract out highway functions that it considers contractors are better placed to manage at greater value for money. It is also unable to compare in-house operations with external arrangements, as encouraged by best value guidance.

We have carried out extensive consultation on these proposals among a range of stakeholders. This exercise revealed no strong opposition to granting TfL these powers, beyond the importance of TfL demanding similar standards from contractors carrying out its highway functions to those it would expect from its own staff. I agree that this is important, but feel confident that Transport for London is well placed to manage this issue.

Under these arrangements, TfL would retain responsibility for the discharge of its highway functions and would thus continue to be accountable for the work carried out by contractors acting on its behalf. Other local highway authorities have used powers to contract out highway functions effectively for many years, including provisions within contracts to manage both quality and response time standards to satisfactory levels. I do not believe that there are any legitimate reasons to treat TfL differently from other local authorities in these respects.

The arrangements set out in the order will enable TfL to better pursue its obligations as a best value authority and should enable it to achieve greater value for money in arranging for the execution of its highway functions and of its investment functions.

As noble Lords will have noted from the title of the draft order, we had originally intended for the order to be made last year. This was not possible, due to parliamentary time constraints. Should noble Lords agree to approve the order, as I hope they will, the year cited in the title shall of course be changed to 2006. I commend the draft order to the House.

Moved, That the draft order laid before the House on 16 November be approved [10th Report from the Joint Committee].—(Lord Bassam of Brighton.)

My Lords, I thank the Minister for having brought the order to the House. Let me say at the outset that I have no objections to it. I am fascinated, of course, that Transport for London has suddenly become a local authority, even if it is in some rationalised terms, but I think that many people would dispute the fact that it can be considered as such.

I have just two questions for the Minister. Local government is required to have an investment panel of councillors and independent members to manage investors, to see that investment managers are chosen, to have beauty parades from time to time, to make sure that the investment managers are changed and to be sure that the arrangement between investment managers and fundholders does not become too cosy. In the light of the make-up of Transport for London, how will this be done to ensure reasonably independent scrutiny?

Secondly, will Transport for London be subject to the same rules of contract regarding competition, the length of contracts and the review of contracts? Again, it falls back on who will be making the decisions on this matter and who will be the independent scrutineers to make sure that things do not become too cosy. If the Minister replies to those questions, for the rest, I have no objection.

My Lords, I, too, will be mercifully brief. I thank the Minister for bringing the order to the House. As I understand it, both the London Assembly and Transport for London say there is nothing to say about this order. It is simply there to bring Transport for London in line with local authorities as far as best value on transport procurement is concerned. The position of TfL is often anomalous in legislative terms as it is neither fish nor fowl—not a local authority but carrying out many of the functions carried out by local councils elsewhere. These Benches support the order.

My Lords, I am most grateful to both noble Baronesses who have contributed to this very short consideration of the order—hardly any time has elapsed. The noble Baroness, Lady Hanham, made an aside about the definition of local authorities seeming to cover TfL. The definition of a local authority under the Deregulation and Contracting Out Act 1994 does not, strictly speaking, include TfL. However, as I think I made clear in my observations, by virtue of Section 1 of the Local Government Act 1999, TfL can be a best value authority, and I suppose we should all be very grateful for that.

The noble Baroness, Lady Hanham, asked a couple of questions, which I may be able to answer. Independent scrutiny arrangements are approved by the Audit Commission through initial performance assessments carried out on a periodic basis. I think that is how it is envisaged that there will be this careful consideration on investment matters. I see that the noble Baroness is shaking her head and I must say that I am not entirely satisfied that that answer is as full as it should be. I will drop the noble Baronesses, Lady Hanham and Lady Harris, a note so that they can have the benefit of a fuller response. I would anticipate that there ought to be some independent scrutiny in this area because, as the noble Baroness, Lady Hanham, said, we cannot afford to have an overly cosy relationship in these situations. In essence, this order is about ensuring that we get good value for money throughout when contracts are put out so that we can match and evaluate in-house with external arrangements and get the best possible deal for the public, because that is what we are after.

Having made that commitment to write to the noble Baronesses, I trust that the House will endorse this order.

On Question, Motion agreed to.