House of Commons Standing Committee for 26 June 1997 (pt 1)

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Local Government Finance (Supplementary Credit Approvals) Bill in Standing Committee A

Local Government Finance (Supplementary Credit Approvals) Bill

Standing Committee A

Second Sitting
Thursday 26 June 1997

[Mrs Gwyneth Dunwoody in the Chair]

Local Government Finance (Supplementary Credit Approvals) Bill

4.30 pm

Question again proposed.
Mr. Christopher Chope (Christchurch): I shall not detain the Committee long but, in answer to the Minister of State's question at our previous sitting, the new clause is intended to relate only to supplementary credit approvals issued in connection with the capital receipts initiative. It would not impose a tremendous bureaucratic burden and we hope that the Government will regard it as helpful, given that they recognise that there is a public sector borrowing requirement implication under the Bill. We are asking that that should be spelt out in terms on an annual basis.
I am sure that the Budget documents, when they are produced, will explain what will happen next year, but why cannot such matters be outlined in the Bill so that we can receive such details regularly? I am disappointed that the Government intimated that they will not accept the proposal; they are resorting to an argument that has often been used before--something, in fact, that I plead guilty to having used myself on one or two occasions--by saying that such a provision is redundant and unnecessary. Opposition Members believe that it is necessary and that it would be helpful.
The Minister of State, Department of the Environment, Transport and the Regions (Ms Hilary Armstrong): I have already put our case. We do not consider that the new clause is necessary or helpful. We shall be phasing the release of supplementary credit approvals. An amount will be announced each year and that will be reflected in the usual way in the accounts. I therefore hope that the hon. Gentleman will withdraw the motion.
Question put, That the clause be read a Second time:--
The Committee divided: Ayes 4, Noes 12.
Division No. 3]
AYES
Chope, Mr. Christopher
Hammond, Mr. Philip
Ottaway, Mr. Richard
St. Aubyn, Mr. Nick
NOES
Allen, Mr. Graham
Armstrong, Hilary
Buck, Ms Karen
Burstow, Mr. Paul
Drew, Mr. David
Hill, Mr. Keith
McDonagh, Ms Siobhain
Moran, Ms Margaret
Raynsford, Mr. Nick
Sanders, Mr. Adrian
Watts, Mr. David
Winterton, Ms Rosie
Question accordingly negatived.
New Clause 2

Exercise of power to take account of capital receipts in granting supplementary credit approvals

`In section 55 of the 1989 Act, after subsection (3), there shall be inserted--
``(3A) In relation to supplementary credit approvals, the Secretary of State shall, in exercising his power, subject to subsection (3) above, to take account of capital receipts--(a) allocate resources according to need and (b) treat all authorities equally, regardless of the individual level of their capital receipts and not differentiating between those authorities that are debt free, and those which have debts.''.'.--[Mr. Chope.]

Brought up, and read the First time.
Mr. Chope: I beg to move, That the clause be read a Second time.
I anticipate that my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) will speak to the new clause at greater length.
Mr. Philip Hammond (Runnymede and Weybridge): The Local Government and Housing Act 1989 gives wide discretion to Ministers and the Bill, which is designed to amend that Act, will provide still wider discretion. Nothing in the Bill explains how supplementary credit approvals will be determined. To discover what Ministers have in mind, we need to examine the consultation paper. There, we see reference to both need and to possession to receipts. Of the two, need is given greater weight, and it seems likely to become increasingly important after the first year, once the rigid formula is relaxed. The Bill should therefore refer to need.
In our debates, extensive references have been made to the release of capital receipts and possession. Why is greater emphasis put on capital receipts, when the formula gives greater weight to need? I probably know the reason. On Second Reading, the Minister said that the Bill was being introduced to honour a manifesto commitment. The reality, however, is different.
In opposition, the Labour party attacked the set-aside regime for capital receipts. Shortly before the election, the then Leader of the Opposition and the then shadow Chancellor imposed a straitjacket upon themselves to ensure that there were no loose ends in their presentation of their party to the electorate. They said that if they won the general election, they would adhere to the previous Administration's plans for departmental public spending during their first two years in office. The promise to release capital receipts was never compatible with the commitment to control total departmental spending.
The Conservative party referred to that election pledge as Labour's black hole. Indeed, I would go further, and remind the Committee that my right hon. Friend the Member for Huntingdon (Mr. Major), the former Prime Minister, described it as a marketing scam. Labour's manifesto stated that capital receipts received but not spent would be released. That implies a pot of money--a stock of money rather than a flow of it. That pledge represented an attempt to suggest that the commitment could be met without infringing the limits on departmental spending.
In fact, the Bill represents a backsliding from the manifesto commitment on several fronts. It refers to the total aggregate flow of capital receipts over time, not the stock of capital receipts; it makes no attempt to remove the provisions for set-aside of future receipts; and it allows capital receipts to be taken into account according to the formula in the consultation paper only to the extent of one third of the total in the first year.
As with any marketing scam, the customers are queuing up with their IOUs; they are not terribly happy. I can understand why it is attractive to the Government to make repeated reference to capital receipts and possession, but need will be the most important part in the formula that the Government say that they intend to follow.
The consultative document shows the allocation formula that the Government intend to use for the first year only. Thereafter, Ministers will have increasing discretion. New clause 2 seeks to limit that discretion by including in the Bill an explicit reference to need. The anticipated under-utilisation of the supplementary credit allocations in the first year, the result of debt-free authorities being reluctant to take them up, will enable the Treasury to appear more generous, in the full knowledge that Ministers will have no discretion to reallocate credits in respect of authorities that do not take them up.
The obligation to take account of need, as well as the ability to take account of capital receipts, reflects what has been said in the debate and what is stated in the consultative document. I suggest that it would be a more honest presentation of the measure for need to be referred to in the Bill.
Our proposed subsection (3)(b) relates to the spending consequences of the measure, especially the implications for maintaining the departmental total spending limits. Ministers have admitted that the measure will involve new and additional spending, so we are entitled to ask from where the cuts will come and what will have to give to make it possible. Our objective in tabling the new clause is to rule out the possibility that the money will be found by penalising debt-free or, indeed, indebted authorities that have substantial capital receipts and which generate income from them. Both the capital sums in the supplementary credit approvals and the revenue support costs of those will have to be found somewhere.
The Under-Secretary and the Minister of State have suggested both in the Chamber and in Committee that they do not expect either taxes or council rents to rise as a result of the measure. Will Ministers underwrite that with an assurance that there will be no change in the standard spending assessment calculations for interest on notional borrowing and no taking account of the interest income of local authorities with substantial set-aside receipts?
We are anxious to protect a system that, at the moment, benefits taxpayers and tenants of prudent, sensible authorities which have dealt with their capital receipts appropriately. My fear, as outlined by my hon. Friend the Member for Christchurch (Mr. Chope) during our previous sitting, is that there will be an attack on the revenue support of local authorities that are debt free and which have substantial investments, which will lead to higher rents and higher taxes being forced on those authorities. My hon. Friend sought an assurance from the Minister that there would not be changes that would disadvantage such authorities, but he did not receive it. Perhaps we can have such an assurance now.
If we do receive such an assurance, how will the costs of the measure be met within the departmental spending total? If other parts of the local authority support budget are raided to pay for the Government's proposals, how will the Minister ensure that their proposals do not have the effect of diverting funds that are intended under the initiative to provide additional housing to substitute the forgone revenue?

© Parliamentary copyright 1997
Revised 27 June 1997

Local Government Finance (Supplementary Credit Approvals) Bill
Standing Committee A Second Sitting Thursday 26 June 1997 [Mrs Gwyneth Dunwoody in the Chair] Local Government Finance (Supplementary Credit Approvals) Bill 4.30 pm Question again proposed. Mr. Christopher Chope (Christchurch): I shall not detain the Committee long but, in answer to the Minister of State's question at our previous sitting, the new clause is intended to relate only to supplementary credit approvals issued in connection with the capital receipts initiative. It would not impose a tremendous bureaucratic burden and we hope that the Government will regard it as helpful, given that they recognise that there is a public sector borrowing requirement implication under the Bill. We are asking that that should be spelt out in terms on an annual basis. I am sure that the Budget documents, when they are produced, will explain what will happen next year, but why cannot such matters be outlined in the Bill so that we can receive such details regularly? I am disappointed that the Government intimated that they will not accept the proposal; they are resorting to an argument that has often been used before--something, in fact, that I plead guilty to having used myself on one or two occasions--by saying that such a provision is redundant and unnecessary. Opposition Members believe that it is necessary and that it would be helpful. The Minister of State, Department of the Environment, Transport and the Regions (Ms Hilary Armstrong): I have already put our case. We do not consider that the new clause is necessary or helpful. We shall be phasing the release of supplementary credit approvals. An amount will be announced each year and that will be reflected in the usual way in the accounts. I therefore hope that the hon. Gentleman will withdraw the motion. Question put, That the clause be read a Second time:-- The Committee divided: Ayes 4, Noes 12. Division No. 3] AYES Chope, Mr. Christopher Hammond, Mr. Philip Ottaway, Mr. Richard St. Aubyn, Mr. Nick NOES Allen, Mr. Graham Armstrong, Hilary Buck, Ms Karen Burstow, Mr. Paul Drew, Mr. David Hill, Mr. Keith McDonagh, Ms Siobhain Moran, Ms Margaret Raynsford, Mr. Nick Sanders, Mr. Adrian Watts, Mr. David Winterton, Ms Rosie Question accordingly negatived. New Clause 2 Exercise of power to take account of capital receipts in granting supplementary credit approvals `In section 55 of the 1989 Act, after subsection (3), there shall be inserted-- ``(3A) In relation to supplementary credit approvals, the Secretary of State shall, in exercising his power, subject to subsection (3) above, to take account of capital receipts--(a) allocate resources according to need and (b) treat all authorities equally, regardless of the individual level of their capital receipts and not differentiating between those authorities that are debt free, and those which have debts.''.'.--[Mr. Chope.] Brought up, and read the First time. Mr. Chope: I beg to move, That the clause be read a Second time. I anticipate that my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) will speak to the new clause at greater length. Mr. Philip Hammond (Runnymede and Weybridge): The Local Government and Housing Act 1989 gives wide discretion to Ministers and the Bill, which is designed to amend that Act, will provide still wider discretion. Nothing in the Bill explains how supplementary credit approvals will be determined. To discover what Ministers have in mind, we need to examine the consultation paper. There, we see reference to both need and to possession to receipts. Of the two, need is given greater weight, and it seems likely to become increasingly important after the first year, once the rigid formula is relaxed. The Bill should therefore refer to need. In our debates, extensive references have been made to the release of capital receipts and possession. Why is greater emphasis put on capital receipts, when the formula gives greater weight to need? I probably know the reason. On Second Reading, the Minister said that the Bill was being introduced to honour a manifesto commitment. The reality, however, is different. In opposition, the Labour party attacked the set-aside regime for capital receipts. Shortly before the election, the then Leader of the Opposition and the then shadow Chancellor imposed a straitjacket upon themselves to ensure that there were no loose ends in their presentation of their party to the electorate. They said that if they won the general election, they would adhere to the previous Administration's plans for departmental public spending during their first two years in office. The promise to release capital receipts was never compatible with the commitment to control total departmental spending. The Conservative party referred to that election pledge as Labour's black hole. Indeed, I would go further, and remind the Committee that my right hon. Friend the Member for Huntingdon (Mr. Major), the former Prime Minister, described it as a marketing scam. Labour's manifesto stated that capital receipts received but not spent would be released. That implies a pot of money--a stock of money rather than a flow of it. That pledge represented an attempt to suggest that the commitment could be met without infringing the limits on departmental spending. In fact, the Bill represents a backsliding from the manifesto commitment on several fronts. It refers to the total aggregate flow of capital receipts over time, not the stock of capital receipts; it makes no attempt to remove the provisions for set-aside of future receipts; and it allows capital receipts to be taken into account according to the formula in the consultation paper only to the extent of one third of the total in the first year. As with any marketing scam, the customers are queuing up with their IOUs; they are not terribly happy. I can understand why it is attractive to the Government to make repeated reference to capital receipts and possession, but need will be the most important part in the formula that the Government say that they intend to follow. The consultative document shows the allocation formula that the Government intend to use for the first year only. Thereafter, Ministers will have increasing discretion. New clause 2 seeks to limit that discretion by including in the Bill an explicit reference to need. The anticipated under-utilisation of the supplementary credit allocations in the first year, the result of debt-free authorities being reluctant to take them up, will enable the Treasury to appear more generous, in the full knowledge that Ministers will have no discretion to reallocate credits in respect of authorities that do not take them up. The obligation to take account of need, as well as the ability to take account of capital receipts, reflects what has been said in the debate and what is stated in the consultative document. I suggest that it would be a more honest presentation of the measure for need to be referred to in the Bill. Our proposed subsection (3)(b) relates to the spending consequences of the measure, especially the implications for maintaining the departmental total spending limits. Ministers have admitted that the measure will involve new and additional spending, so we are entitled to ask from where the cuts will come and what will have to give to make it possible. Our objective in tabling the new clause is to rule out the possibility that the money will be found by penalising debt-free or, indeed, indebted authorities that have substantial capital receipts and which generate income from them. Both the capital sums in the supplementary credit approvals and the revenue support costs of those will have to be found somewhere. The Under-Secretary and the Minister of State have suggested both in the Chamber and in Committee that they do not expect either taxes or council rents to rise as a result of the measure. Will Ministers underwrite that with an assurance that there will be no change in the standard spending assessment calculations for interest on notional borrowing and no taking account of the interest income of local authorities with substantial set-aside receipts? We are anxious to protect a system that, at the moment, benefits taxpayers and tenants of prudent, sensible authorities which have dealt with their capital receipts appropriately. My fear, as outlined by my hon. Friend the Member for Christchurch (Mr. Chope) during our previous sitting, is that there will be an attack on the revenue support of local authorities that are debt free and which have substantial investments, which will lead to higher rents and higher taxes being forced on those authorities. My hon. Friend sought an assurance from the Minister that there would not be changes that would disadvantage such authorities, but he did not receive it. Perhaps we can have such an assurance now. If we do receive such an assurance, how will the costs of the measure be met within the departmental spending total? If other parts of the local authority support budget are raided to pay for the Government's proposals, how will the Minister ensure that their proposals do not have the effect of diverting funds that are intended under the initiative to provide additional housing to substitute the forgone revenue?