This new clause enables a Minister of the Crown or the Commissioners for Her Majesty’s Revenue and Customs, following a statutory consultation process, to make an order under the Public Bodies Act 2011 abolishing the board of Public Works Loan Commissioners and transferring its functions to another person.
What a pleasure it is to return to the deliberations of the Committee after a short break, during which I have been able to follow the proceedings with interest.
The new clause deals with the Board of Public Works Loans Commissioners, commonly known as the Public Works Loan Board or PWLB. It is a statutory body, which dates back to the Public Works Loans Act 1875. With the diligence for which the Committee is rather quickly gaining a reputation, I know that hon. Members will have had a look at that Act. Just in case anyone left it in their office before rushing to do their work in Committee, I brought a copy of the Act with me. I have also brought the record of the Second Reading of that Act, which established the principles that we are discussing today and which the then Chancellor of the Exchequer introduced. I will give a prize by the end of the Committee’s consideration—I do not mean this afternoon—for any Member who can tell me who the Chancellor was on that occasion. He said, saliently:
“What the Government aimed at was, in the first place, to secure the Treasury against inconvenient, inexpedient, and irregular calls being made upon it through the Public Works Loans Commissioners.”—[Official Report, 24 May 1875; Vol. 224, c. 800-01.]
If it were still the case that the commissioners were doing that in practice, there might not be a case for the measures in the Bill.
The PWLB consists of 12 commissioners appointed by the Crown to administer the making of loans to local authorities. Commissioners are independent of the Government and are unpaid—indeed, unpaid by statute. Under section 4 of the National Loans Act 1968, which I also have with me, the PWLB sets a statutory lending limit, which is currently £70 billion. The existing level of debts amounts to about £64 billion. During consideration in the House of the Bill that became the National Loans Act, the then Chief Secretary to the Treasury made it clear that, even at that stage—noting that most of the legislation being dealt with was made in the previous century and therefore “is no longer relevant”—the purpose of the body was to secure the public interest in respect of loans taken out by public bodies. That referred not only to local authorities but to nationalised industries, which were dealt with in some detail in that consideration. Increasingly, those public bodies have become local authorities.
Since 2004, however, decisions on such borrowing have been fully devolved to local authorities. In my judgment that was an enlightened decision and, as I cast my eye around the Room to see the source of that enlightenment, my eye descends on the right hon. Member for Greenwich and Woolwich, who, as the Minister at the time, introduced the legislation that empowered local authorities to make decisions about investment and the associated loans in a fresh way. The system is, in essence, one of self-regulation. Local authorities regulate the regime and are now free to finance capital projects by borrowing without requiring Government consent, provided that they can afford to service the debts out of their revenue. That qualification is critical. When the right hon. Gentleman introduced the legislation—again, I have the record of his contribution on that occasion—he made it clear that that important check secured the public interest, as the Chancellor of the Exchequer in 1875 and the Chief Secretary in 1968 were so keen should be the case.
As a result, the decision-making functions of the PWLB commissioners became, in practice, obsolete. Local authorities were responsible for their own decisions on whether to borrow and how much. Further, the day-to-day operations of providing loans are now carried out by the Debt Management Office, or DMO, which is an Executive agency—
We were discussing the Public Works Loan Board and the changes that have been made over time that have made its work less relevant and, ultimately, made its purpose redundant. I was describing the delegation of its functions and powers to the Debt Management Office. The Public Works Loan Board has a secretary, who is a Treasury civil servant, and in essence the powers are delegated to him. That means that with the devolution of decision making about the taking of loans, and the change in the circumstances of the board in relation to the Treasury, the exercise of its powers has been—I was going to say negligible, but that would be something of an exaggeration—non-existent.
At one time, local authorities had to go through a credit approval process when they wanted to invest. That was time-consuming and ultimately became regarded as unnecessary—thus the changes introduced by the right hon. Member for Greenwich and Woolwich, as I mentioned a moment ago. That was certainly the regime that prevailed when I was a local councillor before I became a Member of Parliament in 1997. The powers that the right hon. Gentleman gave local authorities have not led to a series of problems. There is no evidence that they have borrowed irresponsibly, and there is no history of problems with their repayments, which are of course how we gauge whether they are capable of funding the investments they make.
The purpose of the measures in the Bill is, in a sense, to do the final piece of work that became the inevitable consequence of the changes made in 2004. The highly regarded prudential regime, as it is known, means that there is no scope nowadays for commissioners to exercise influence or discretion over lending to local authorities. The aim is to abolish the Public Works Loan Board while ensuring that permitted borrowers—now mainly local authorities, as I said—will continue to be able to access central Government loans in the same way that they do now.
The purpose of including the PWLB in schedule 1 to the Public Bodies Act 2011 is to confer on the Government the power to make an order under the PBA which will have the effect of abolishing the PWLB and transferring its functions to an eligible person, as defined in the PBA. We briefed Members on this matter because it is, of course, quite a radical step on the face of it. I assure the Committee, as I have done informally, that the abolition of the PWLB and the succession arrangements will be subject to proper parliamentary scrutiny under the PBA process.
This proposal is purely about governance reform. It is not about the ability of local authorities to borrow or the checks and balances in place upon their repayments. It will not impact on the prudential regime or local authorities’ existing loans with the PWLB at all. Local authorities will be able to undertake new borrowing from the successor body as they do now, at rates that offer good value for money. Interest rates will continue to be a policy matter for HM Treasury. Following the commencement of the provisions in the new clause, the Government plan to publish a consultation document providing details of proposals for the abolition and succession, which we have to do under the PBA.
After taking into account responses from the consultation, both Houses of Parliament will have the opportunity to scrutinise the draft legislation, which will, of course, be accompanied by an explanatory document as required by section 11 of the PBA. The abolition of the PWLB will remove bureaucracy and align accountability for lending to local authorities with the DMO's existing responsibilities for day-to-day operational management. That is very much in line with the Government’s wider efficiency and modernisation agenda.
It may be worth adding that it has been exceedingly difficult to find people to become commissioners. As I said at the outset, there should be 12 but we currently have seven. As we are obliged under existing statute to recruit more, we are looking to add two more. Until the Bill becomes an Act, which I hope it will, we have to do that. There is no real incentive to become a commissioner, given the changes that I have described. Commissioners, for the sake of the record, are unpaid and unrewarded in that sense in any way.
My hon. Friend the Member for Newark has kindly said that he had not expected me to be able to furnish the Committee with details of the 1875 Act or, indeed, the 1968 Act, nor to have studied the Act of which the right hon. Member for Greenwich and Woolwich was the originator. My hon. Friend said—I end on this note—that my diligence is as great as my eloquence. I am too modest to draw the conclusion he drew, and almost too modest to draw it to the attention of the Committee. I am a proud supporter of local government and its continued ability to borrow to invest, and I am equally proud of the fact that we are clearing up something of a legislative mess.
Let me say what a pleasure it is to welcome the Minister back to his place. As we know, the new clause will give the Government the power to abolish the Public Works Loan Board. We all have to accept that that was largely achieved by my right hon. Friend the Member for Greenwich and Woolwich when he was a Minister. This appears to be a largely uncontentious measure; nevertheless, that body has been in existence since 1875, as we have all heard. The Minister and I have a strong commitment to preserving our heritage, so we must tread carefully and be sure that all the questions that should be asked have been asked. I have a number of questions for the Minister this afternoon.
I shall start by asking about consultation. On 14 July last year the Government said that they were going to review governance arrangements for the PWLB and consult on them. However, we do not seem to have had a consultation on the new clause, and I am a bit surprised by that. What we have heard from the Minister today is that he is asking us to approve the new clause providing powers to abolish the PWLB, and then he will consult. I suggest gently to the Minister, in an analogy appropriate to 1875, that that is putting the cart before the horse. It would be more normal and more rational, would it not, to have the consultation exercise, hear what people have to say and then decide whether it is appropriate to abolish, or even have the power to abolish, this board? Will the Minister explain why he thinks it is appropriate that the Government did not go ahead with the consultation last year, which they said they would, but have instead brought this measure forward completely out of the blue to seek the power to abolish the PWLB and then have a consultation? That does not seem to the Opposition to be doing things in the right order.
I thank the Minister for arranging a meeting with the relevant officials last week. Indeed, the Minister’s approach has been a model for other Ministers to follow in giving the Committee access to officials so that we could ask appropriate questions. I very much welcomed that meeting, but, as with all such meetings, I had more questions at the end than I had had at the beginning. There are a few issues that we did not get sufficient clarification on, either from that meeting with officials or from the Minister’s earlier comments.
We know that the Public Works Loan Board no longer makes decisions about loans to local government. It is pretty clear that, since 2004, local government loans are expected to follow the prudential borrowing scheme and that local government should inform the Treasury of loans that are made. What was not clear, and is perhaps still not clear, is whether the Public Works Board has any residual function. Does it have any say whatever in terms of what is happening to local government borrowing more generally, even if there is no specific function to approve particular loans? Indeed, from our meeting last week it was not apparent whether anybody has oversight of what local authorities are actually borrowing. It is important to have that clarification today.
We know that the functions of the Public Works Loans Board ended up with the Debt Management Office, an agency of Her Majesty’s Treasury. It is not clear at what point the office is able to intervene to turn down a loan if it thinks it is outside the prudential borrowing requirements. The degree to which the office has oversight is not clear, nor is it clear whether, at some future stage, it could interfere in setting the terms for the prudential borrowing requirement itself. Some clarification on who sets that requirement would greatly help our deliberations on whether the measure we are discussing is needed.
All of us want assurance that there is good oversight of local government borrowing, but also that there is not too much oversight or interference, and that there can be effective scrutiny of what is going on. At the minute, local authorities borrow according to the prudential rules, but it is not clear whether the commissioners had some general oversight or adhered to the public sector borrowing requirement, and whether that has been passed on to the DMO.
The Government have said that they wish to establish a new mechanism for local authority lending, which they want to consult on. However, again, we do not seem to have any idea of what the new system might be, who will have oversight of it or the degree of autonomy it will give to local government; absolutely critically, we have no idea whatever of how we will get parliamentary scrutiny of that mechanism. We know that, at the moment, an annual report is produced. It goes to the Public Works Loans Board Commissioners, but does not appear to go anywhere else, and we do not know whether it could. Could the Treasury Committee, for example, call for that particular report? Is it aware of its existence? If not, should there be a report on public sector borrowing by local authorities each year? If so, where should it be considered in Parliament? That is an interesting question on which we have had no comment from the Minister or his officials.
We also know that local government itself is seeking to establish a new borrowing scheme. The Local Government Association produced a report in mid-2012 proposing the creation of a collective bond-issuing agency. Participation would not be compulsory, but would be attractive to smaller local authorities that might not be able to obtain the best price in the conventional bond market. As of 15 December 2014, a total of 48 local authorities had agreed to invest in a new agency that would provide that function and it is anticipated that the first loans will be granted in spring 2015.
Again, there has been no indication from the Minister or his officials, or in any of the information they have passed on to us, of whether the new scheme will be acceptable to the Government. Will it be overseen by the Debt Management Office? How are we, as parliamentarians, to be given some reassurance that local authority borrowing will be subject to effective scrutiny, not only from local authorities themselves but in this House?
I would greatly appreciate it if the Minister could come back to me on these fairly substantive outstanding issues on what, on the face of it, seems a fairly innocuous measure.
I rise briefly to make what is perhaps a bit of a personal protest about how this particular new clause has been introduced and presented to us today. There are some issues about the lack of scrutiny of it, but I very much concur with my hon. Friend the Member for City of Durham that the Minister’s facilitation of meetings to discuss the issue is a welcome way of doing business on the Bill.
The new clause is introduced outside the terms of the long title of the Bill; when the Bill went before the Lords, the new clause was not in the legislation and nor was it on its Second Reading in this House, but halfway through Committee, suddenly it is in the Bill. In order to include the new clause in the legislation, an amendment must be made to include an addition to the long title. I know that that practice has become more common than it ought to in recent years—indeed, the said amendment refers to another clause as well—but I cannot believe that that is a good way of making legislation, and nor does the House of Commons brief guide “Making Laws”. If we have a look at that guidance, it has a jolly little insert box that says:
“Did you know Bills have two titles? The short title…is the one people use to talk about it. The long title…is the one that says what it does. Any changes made to the Bill must conform to the long title.”
Presumably, that guide now ought to be amended to say, “Unless it doesn’t.” That would clarify the matter for visitors to the House of Commons.
I am a little concerned by the Minister’s explanation that amendment 47 is consequential on new clause 10. That cannot be right because that is the amendment that actually adds something to the long title of the Bill. Unless something is added to the long title of the Bill, new clause 10 is not in order. Therefore, new clause 10 must be consequential on amendment 47. In the Alice in Wonderland world that we are now in in terms of long titles of Bills, it might be useful if explanations conformed to the actual strange things we are now doing to legislation rather than put the matter the other way round. At the very least, I would anticipate that the Minister might write to those hard-working people who produce the guides for members of the public about how we make legislation in this place so that they can have an accurate picture of what actually happens, rather than what is theoretically the case according to what we think is the way we go about legislation.
I shall be brief, but I want to raise one further Alice in Wonderland element and then add a little historical observation. The Alice in Wonderland part is the actual terminology of new clause 10. The Minister will know that the way in which he is effecting the abolition of the Public Works Loan Board commissioners is by inserting into the Public Bodies Act 2011 a new power or listing of the Public Works Loan commissioners to the list of bodies that can be established by Ministers. However, what I notice is that it is being inserted after “Plant Varieties and Seeds Tribunal.” Is this bringing us back to the whole story of invasive species that we were debating a week ago or is it entirely coincidental? I would welcome the Minister’s observation on whether this is a piece of serendipity or whether there is some malign intention to do away, not just with the custodians of our country against invasive species, but with the fine people who have established probity in government finance throughout the past 150 years or so since Sir Stafford Northcote set them up.
My second observation relates to history because the Minister was generous in referring to my contribution towards the process leading to the present in the introduction of the prudential borrowing regime in 2003—it came into effect in 2004—but, of course, there is a longer story behind that. I apologise for injecting an element of partisan debate into what otherwise has been a rather non-partisan discussion, but hon. Members should be aware that the prudential borrowing regime was introduced because the then previous Conservative Government, headed by Baroness Thatcher, had interfered with Sir Stafford Northcote’s framework for lending to local authorities by imposing draconian additional restrictions on local authority borrowing. That was the beginning of the process of, essentially, drawing to an end the life of the Public Works Loan Board commissioners because the Treasury was given much more specific and draconian powers to control local authority borrowing than had previously existed. That is what we were getting rid of in 2003 by establishing a prudential regime.
I am pleased that the Minister has been generous in conceding that that was the right thing to do, and in recognising that the fears that were voiced at the time by the then Opposition, as well as by Members of our party, that that should not be allowed to open the door to unwise borrowing have proved groundless. The safeguards that we put in place have not proved necessary. The scheme has worked well, which is why the Minister has some explanations to give to the Committee because the present Government do not really believe that. Look at borrowing by local authorities for housing: the current Government impose a cap on local authority borrowing limits below the cap that would otherwise apply through the prudential regime. They do not allow local authorities to borrow for housing investment up to the prudential borrowing cap; they have a separate lower cap.
The LGA estimated—this is about a year ago so it may not be up to date—that the local government community could probably create something in the order of 60,000 new homes if it was free to borrow up to the prudential borrowing limit, rather than being restricted by the current cap. I put it to the Minister that although it in no way changes the purpose of this new clause, there is an unanswered question about whether local authorities should be allowed to borrow within the framework of a prudential borrowing arrangement that has proved successful, has not opened the floodgates to irresponsible borrowing, and has been generally seen as a worthwhile contribution to public finance. I leave it at that.
The hon. Member for City of Durham raised a number of questions, and before she did so was very generous—rather too generous, actually—in saying that I have been a model of how a Minister should behave in Committee. There have always been Ministers who have involved the Opposition in consideration, and I benefited from that as a shadow Minister under the previous Government.
Let me try to deal with all the questions that have been raised. I will not necessarily deal with them in the order that they were offered, because I want to add some excitement to our affairs, even at this late stage in the day. I will deal first with the remark that the right hon. Member for Greenwich and Woolwich made about coincidence. I, as other members of the Committee I am sure will rush to agree, generally take the view that Archbishop Temple took of coincidence, in that I think, as he did, that people ascribe God’s miracles to coincidence until they stop happening and they realise that there is no such thing as coincidence. But there certainly is serendipity. As the right hon. Gentleman said, it is serendipitous—and no more than that—that the provisions in new clause 10 should find themselves adjacent to changes to the Plant Varieties and Seeds Tribunal.
I will return to the right hon. Gentleman’s second remark towards the end of my consideration, once, as a matter of chivalry and courtesy, I have dealt with the shadow Minister’s important questions. The hon. Lady asked what responsibilities the commissioners retain. It is right to say that in practice their function has become redundant, but she has perfectly properly asked what their responsibilities remain in statute. Their responsibilities are to produce an annual report—a review—which they sign. In practice, they meet once a year, and the report is prepared by officials. To confirm, there is no scope at all for commissioners to exercise influence or discretion over the Public Works Loan Board’s activities. I cannot be plainer than that.
The shadow Minister asked, “Why now?” The Treasury carried out a review of the Public Works Loan Board in April 2014; this Bill was therefore the most appropriate legislative opportunity to make the changes that had their origin in that review. She also asked, “Why have a further consultation?”—a fair question, given what I have just said. However, perhaps I can respectfully remind her that we are obliged to do so under section 10 of the Public Bodies Act 2011, which means that we have to consult on any change of this sort.
I am grateful to the Minister for his thorough explanation. However, my question was not about the nature of the consultation or what legislation it was required on; it was about why the Government had brought forward this measure before consulting, when they had indicated that they would consult last summer and are instead carrying out a consultation afterwards.
I think that might be the second example of serendipity in our consideration of this matter. I suppose the answer is because the Bill is here: the necessity to consult is a legal requirement; the opportunity afforded by the Bill to take this step is, in truth, a product of circumstance. The hon. Member for Southampton, Test asked why it was added now. I suppose the blunt answer to that—you will not hear this very often from a Minister, Mr Hood—is because it could be.
I thank the Minister for his straightforward answer, but it rather underlines my point that this is the “Anything we couldn’t put in previously and hadn’t quite thought of, but have now decided to do” (No. 2) Bill. The Minister might at least acknowledge that this rag-bag of a Bill is having further rags added to it regularly, and what we are discussing this afternoon is one of them.
We would not be the first Government, and I would not be the first Minister—dare I say, there may even be Ministers in this Room from other political parties who have done this—to use legislation to effect all kinds of virtuous things, even where, at first glance, that legislation was not their natural place to reside. However, I might be one of the very first Ministers to admit it.
Surely the most rational explanation is that this Government, even well into their fifth year, remain so vigorous and so determined to reform Britain for the best across so many different fronts and so many different departments, that it is difficult for us to accommodate all our energetic new ideas without putting a lot of them into this single Bill.
I am not a rationalist, so I am not sure I would want to identify with rationalism in any way, but I am certainly vigorous, and I will take the compliment in the terms that it was offered.
The hon. Member for City of Durham also asked what the key powers conferred by the 1875 Act were and who now exercises them. The key powers are to refuse a loan on the basis of a lack of security against repaying the loan, to appoint a secretary to hold the security—I mentioned that earlier—and to delegate the PWLB functions to that person and to issue a report as I have described. All the functions that remain have been delegated to that civil servant—the secretary—and are overseen in practice through the HMT/DMO accounting officer structure.
The hon. Member for Southampton, Test mentioned the long title of the Bill. I do not want to stray into other matters, except to say that he is right: the long title of the Bill will need to be amended to take account of all the exciting, vigorous features which are now part of it. However, as I have mentioned before, it is by no means unprecedented, as he knows, for the long title of a Bill to evolve over time, because it is not uncommon for Governments to bring forward amendments to Bills during their passage.
The hon. Member for City of Durham drew attention to the need for Members to be properly briefed when that happens. I wanted to do so, because there is a responsibility to properly inform Members about the detail and assuage any doubts. To that end, what I will do—I know this will please almost everybody in this Room—is send a short note on the 1875 Act and subsequent legislation to Committee members. Various members have drawn attention to that during their considerations.
Far be it for me to add to this interesting historical diversion, but my understanding was that a Bill has a long title so that we can understand and address what, roughly speaking, is in it, particularly on Second Reading. It is indeed the case that Governments bring forward amendments, but they are normally within the context of the long title of a Bill. That is why the long titles of Bills have evolved to include “and for connected purposes”. The long title can be strained in order to fit a ‘connected purpose’, but these changes are clearly so far outside the connected purposes that we need an amendment to the long title as well.
That is a wonderfully starry-eyed view—I say this not pejoratively, but rather admiringly—of the understanding which all Members gain of Bills during the course of their consideration on Second Reading. None the less, the hon. Gentleman will know that that is precisely why, in introducing measures, there is a test of scope. If measures are found not to be in scope, they would not be brought forward. This measure was found to be in scope, not least because infrastructure is an interesting and challenging thing to define—
The 2010-11 report points out that one of the duties of the Public Works Loans Act 1875 was to report annually to Parliament. How will that happen under the new process?
I certainly do not envisage any change to parliamentary scrutiny, because I share the hon. Gentleman’s interest in this. At present, it is perfectly proper for Parliament to consider how much is being borrowed and by which local authorities, and whether those local authorities have repaid against money that has been borrowed. That should continue to be the case. Whatever the new arrangements are, during the course of the consultation, I will personally emphasise—as I am sure the hon. Gentleman would—that those should be important requirements of the new arrangements.
Without making more ado of this, in essence I believe that the measures contained in the new clause before us allow us to complete the work of the right hon. Member for Greenwich and Woolwich. They are also in the spirit of what Sir Stafford Northcote—who was the Chancellor of the Exchequer who introduced the original Bill in 1874, which became the 1875 Act, and who died during a visit to Downing street—meant when he determined that it was right that the Government should maintain a diligent concern as to what is borrowed and what is repaid.
Let me say kindly to the Minister that I must be particularly dim this afternoon, because I do not feel any the wiser about the answers to most of the questions I asked, particularly those about where the reporting function is for the amount of local authority borrowing, whether it adheres to the prudential borrowing regime, where parliamentary oversight of that system rests and, indeed, what role the DMO has in approving loans that are undertaken by local government, if any at all.
However, perhaps we will have to wait to be enlightened by the Minister’s note, which those of us on this side of the Committee will obviously await with great anticipation. If the note does not answer those questions, perhaps we could consider this again at later stages of the Bill. I would ask the Minister to add one thing to that note, which is how the consultation process will be undertaken if this measure is approved and whether, in carrying out that exercise, he will seek to answer the questions that have been asked today. That is so that when people eventually have to make a decision on whether abolition will take place, they will have all the information before them and will be assured that there will be proper oversight of local government expenditure before that decision is made.
Yes, we would ensure that the consultation is speedy, but comprehensive; and yes, we would include the matters the hon. Lady has described, particularly in respect of parliamentary oversight.
Adjourned till Thursday 15 January at half-past Eleven o’clock.
Written evidence reported to the House
IB 30 Friends of the Earth
IB 31 Dr Janet Moxley
IB 32 Arun District Council
IB 33 Save Wildlife
IB 34 Roger Humphry
IB 35 Helen Cuppleditch
IB 36 GMB
IB 37 Quaker Peace & Social Witness
IB 38 RenewableUK
IB 39 ClientEarth