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Mr. Raynsford: I appreciate that the aim of the amendments may be benign, substituting a code of practice for regulations, because, as the hon. Gentleman says, he has a pathological hatred of regulations. I shall not explore what may lie behind that. We believe that everything is appropriate for a particular purpose. Regulations have their place; they are not the panacea. We see other mechanisms being appropriate in different circumstances. However, I hope that when I have explained why it would be wrong to substitute for regulations the proposed code of practice, the hon. Gentleman will withdraw the amendment. I understand his wish to have an organisation such as CIPFA prepare the code. We all agree that CIPFA does an extremely important job. It is widely respected and we value its judgment.
One aspect of the reason for opposing the amendments is technical. It would not be appropriate to require an authority to follow a code as if it were firm law. Codes are usually in the form of guidance. The furthest that we would expect to go in legislation would be to require an authority to have regard to a code. Clause 25 provides for authorities to have regard to the guidance of their chief finance
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officer, so it would not be appropriate to require them to have regard to another code. I hope that the hon. Gentleman recognises that.
Equally, if the desire is to involve CIPFA in the production of a code, I very much doubt that it would be willing to be involved if compliance with the code were mandatory. CIPFA made it clear in its 1995 guidance on reserves, and in the recent draft update, that it is not prepared to specify minima. In its view, it should be for the chief finance officer to recommend an appropriate level in the light of the specific circumstances of the authority. We agree with that view, as we made clear in the White Paper.
The power in clause 26 will be used only if the process fails. It is a default power where an authority has failed to have regard to the advice of its chief finance officer and it runs its reserve down in a dangerous way, as in the extreme cases that I have described. We are guarding against those circumstances. They are very unusual, so I sincerely hope that we will never have to use the powers, but they are a necessary safeguard and stopgap.
On the basis of that explanation, I hope that the hon. Gentleman recognises that his alternative, although well intentioned, is not an appropriate solution. I hope that he will withdraw the amendment.
Mr. Clifton-Brown: The Minister has not explained, under amendment No. 107, why clause 27(3) could not have been more simply drafted, but I accept his reasonable explanation on amendment No. 106. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 26 ordered to stand part of the Bill.
Clauses 27 to 29 ordered to stand part of the Bill.
Clause 30
Authorisation of agreements during the prohibition period
Question proposed, That the clause stand part of the Bill.
Mr. Clifton-Brown: You may have thought that you were on a roll, Mr. Conway, but all rolls have to stop somewhere. We have not tabled amendments to clause 30, but it would be wrong to let it pass without a debate, because it is the nuclear option. The clause gives chief finance officers considerable powers. As the explanatory notes to the Bill suggest, section 114(3) of the Local Government Finance Act 1988 states:
''The chief finance officer of a relevant authority shall make a report''.
Subsection (6) deals with what should happen
''If the chief finance officer is unable to act owing to absence or illness''.
There are some pretty draconian duties under that section. Section 115 relates to where such a report is to be considered by the full council within 21 days of its issue. During the period from the report's issue until the day after the council meeting, the authority is prohibited from entering into any new agreement that may involve expenditure by the authority.
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We are talking about pretty severe circumstances, but perhaps not quite as severe as the situation in Walsall, which has required special measures. By the time such powers were needed, the council would already be running into some difficult financial circumstances.
It would be interesting to know what is wrong with the existing legislation—is it that chief finance officers have draconian powers? I have asked that question on so many occasions, but I have never received a proper answer. Perhaps the Minister will explain that in a moment. What is wrong with those draconian powers that already exist that we are seeking to supplement them through the clause? Perhaps the Minister will answer that question at some length in relation to this important clause.
5 pm
Mr. Raynsford: I am happy to do that. The clause stands apart from the other clauses in part 2 and it might help if I sketched in a bit of background to aid the Committee's understanding. The other clauses in part 2 aim to ensure that authorities maintain sound finances. We are dealing with a problem that, as the hon. Gentleman said, is already serious.
Sections 114 and 114A of the 1988 Act already contain significant powers that allow chief finance officers to report to their authorities in certain circumstances. We are concerned with the reports under section 114(3), which must be made when, in the chief finance officer's view, the authority will not have sufficient resources to finance its expenditure for the year in question. That is not just a matter of budget deterioration; it pertains to a complete exhaustion of all available resources, including reserves. Once the chief finance officer has issued a section 114(3) report, section 115 requires the full council to meet within 21 days to consider the report. However, from the issue of the report until the day after the council meeting, the council is prohibited from entering into any new agreements involving expenditure.
We have already discussed the point that too much of the legislation may be based on the experience of the London borough of Hackney. Our working with Hackney has been a useful experience, not least because we have discovered a slight deficiency in the section 114 power. That power was used by Hackney because of its serious situation and an unintended consequence of that led us to bring forward the amendment. In the period after the section 114 notice had been served, and before the council could meet, the recovery team tried to put together a grouping of new finance officers and advisers to tackle the serious budget problem, but it was stymied because it could not make any appointments. It was debarred from any expenditure, even though the small sum involved was critical in getting an expert finance team in place to begin to turn around the authority's finances.
We recognise that although there could be circumstances in which the objective of section 114 powers as they are defined in the 1988 Act were right, a modest amendment would help to ensure that they would not have a perverse and negative consequence. The purpose of the provisions in the clause is to amend
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section 115, so that there can be a little bit of flexibility where expenditure is necessary to help the recovery. I hope that the hon. Gentleman will recognise that, in the light of experience, this is a necessary and sensible addition to an existing power, and I hope that the Committee will agree that the clause should stand part of the Bill.
Mr. Clifton-Brown: Again, the Minister has, in a reasonable manner, analysed a problem that I had already outlined and he has, also very reasonably, described what the clause would do to remedy the problem. If a section 114 notice is served, it is nonsense if those who are trying to remedy the situation have no budget with which to appoint new people or take whatever steps are necessary, whether that applies to the reletting of contracts or other matters. There must be a default power and the clause makes sense in terms of the nuclear option—the situation would be pretty bad if it had to be used. On that basis, Mr. Conway, I shall not seek to persuade my colleagues to vote to remove the clause, even though the power that it gives is pretty draconian.
Question put and agreed to.
Clause 30 ordered to stand part of the Bill.
Clause 31
Power to pay grant
Mr. Davey: I beg to move amendment No. 83, in
The Chairman: With this it will be convenient to discuss the following amendments:
No. 84, in
No. 109, in
No. 120, in
clause 36, page 16, line 18, leave out subparagraph (c).
No. 110, in
No. 121, in
clause 37, page 17, line 7, leave out subparagraph (c).
No. 111, in
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