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Lord Rees: Before my noble friend withdraws the amendment, should he decide to do so, I wish to be assured. Can the time limit on such loans endure from financial year to financial year? Alternatively, must they be repaid within the course of the financial year in which they were originally made? It is a most important point. Loans could drag on for a long time. Is there any limit in the aggregate? Let us suppose that there is a loan of £500 million in the aggregate in one financial year that is not fully repaid in the course of that financial year. Can the Secretary of State make a further loan which would take it over the £500 million limit in the

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next year? These points are left a little unclear. Perhaps I have not read the Bill with sufficient exactitude. I hope that I can be reassured on those points.

Lord Falconer of Thoroton: The loans must be repayable within the financial year. The precise repayment date within the financial year is a matter for the Treasury. The aggregate outstanding at any one stage cannot exceed £500 million. I think that that answers all the noble Lord's questions.

Lord Rees: Is the time limit to be found in the Bill?

Lord Falconer of Thoroton: I do not think that it is. The relevant provision is Clause 84(3) which states that,

    "Any loans which the Secretary of State makes under this section shall be repaid to him at such times, and interest on them shall be paid to him at such rates and at such times, as the Treasury from time to time determine".

That aspect is not on the face of the Bill but it is envisaged that loans will always be repayable in the financial year, and the aggregate cannot be more than £500 million.

Lord Mackay of Ardbrecknish: If I heard the noble and learned Lord correctly, he told my noble friend Lord Rees that any money under subsection (1)(a)--because it is unlikely that there will not be a time when the assembly will need a working balance under subsection (1)(b)--would be for temporary excess expenditure. I understand the sort of reasons that may require a loan, when the government in Wales needs money for which it has not budgeted. I want to ask when that money will be paid back. The noble and learned Lord told my noble friend that every loan given would have to be repaid in the same financial year. If funds are given under subsection (1)(a), the problem for the assembly may be that it might exceed its expenditure for that year. I was surprised to hear the Solicitor-General say that. If at the end of the financial year any surviving unpaid loan remained, would that be taken off the top of next year's money as a more sensible way of dealing with crises? If the noble and learned Lord's answer to my noble friend is correct, that is fine--but I thought that the assembly would at the very least be able in special circumstances to repay a loan the following year; otherwise, the need for the loan may not be as urgent as I expected when I read the Bill.

The Earl of Harrowby: It seems extraordinary to discuss this matter because such payments are by their very nature made in a crisis. The odds are that they will never be repaid but will have to be funded from the following year's budget or another source. Actual repayment will not be possible. Supposing there is a major earthquake or something like that, the money will be spent. Such loans can be funded only from another source and almost certainly at a later date, not the same financial year.

Lord Falconer of Thoroton: It is envisaged that where there is an emergency of the sort that I described, by the end of the financial year in which the disaster has

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occurred and the need has arisen, the assembly will have the necessary funds to repay the loan--whether from a supplementary estimate or its own resources. That is the answer to the point made by the noble Lord, Lord Mackay of Ardbrecknish.

The Earl of Harrowby: So the assembly would not repay the loan?

Lord Falconer of Thoroton: It would, because there would be a supplementary estimate. The money would come from central government and would be repaid that way. The loan provision is a sensible way of making money available when one cannot go through the usual necessary procedure quickly because a national emergency of some sort has overtaken Wales.

The Earl of Balfour: I am grateful for this short debate because I did not fully understand the meaning of Clause 84. I am grateful also to the noble and learned Lord for his explanation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 84 shall stand part of the Bill?

Lord Dixon-Smith: I am grateful to the Solicitor-General for his response to the amendment of my noble friend Lord Balfour, which helped clarify the background, and for his letter to me, in which he explained the emergency purpose for which such sums are provided. I am still not wholly convinced as to the need for the clause.

To cite local government precedent in respect of emergencies, it has for a long time operated under the Bellwin formula, whereby a local authority would be required to meet the first product of a penny rate itself. Thereafter, the Government would step in and meet expenditure pound for pound over and above that first sum. That is one way of managing things.

The second problem is that we are dealing with an assembly that will have a budget of around £7 billion. A competent county treasurer--and I assume that the national assembly will employ somebody superior to a competent county treasury--would expect to run his funds with a balance of between 2 per cent. and 3 per cent. at most. On occasion, treasurers have been squeezed down to between 1 per cent. and 2 per cent. The sum of £500 million happens to represent 7 per cent. of budget. I accept that one might be dealing with a great emergency but I find it extremely difficult to conceive of an emergency on the scale that Clause 84 implies that would not involve the UK government immediately, as of necessity. So I have some difficulty with the need for the clause.

Where will the £500 million reside? Clearly it will not reside with the assembly, so presumably it will reside in the English Parliament and in the English Treasury, with the Secretary of State having a right to draw funds down in an emergency situation. I infer that the fund will be part of the Chancellor of the Exchequer's contingency reserve but I am not certain. It would be useful to know

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precisely where the £500 million will reside. If it resides in the UK, its expenditure will have to be authorised automatically in emergency situations. If so, I am almost convinced that Clause 84 is not needed because the money will be provided anyway from funds that already exist elsewhere in the UK budget. I am sorry to trouble the Solicitor-General further but I must press him for a greater explanation.

Lord Mackay of Ardbrecknish: While my noble friend was talking, I realised that I had a second point to raise with the Solicitor-General. Let us assume that the government in Wales need extra money to meet some eventuality and a loan is granted. It is possible that the government in Wales might not be able to find the money from their budget to pay it back. In that case, the supplementary vote would be called into question, but that vote is of the other place. What would happen if the other place decided not to agree to give a supplementary vote? Would it be possible for the Welsh assembly to carry over the loan to its next financial year? If it is not possible to do that, would it be possible for the assembly to do a sleight-of-hand and obtain another loan in the following financial year in order to pay back the loan for the current financial year? In that circumstance, no loan would be carried over into the next financial year. I should be grateful for guidance on what the Government envisage in such a situation, which is new to this country. However, as my noble friend rightly reminded us, although the Bellwin formula caters for such similarities in local government, there must be a clear understanding of what will happen in the kind of eventuality I have put forward.

Lord Falconer of Thoroton: The noble Lord, Lord Dixon-Smith, indicated that the circumstances in which he thought the national loan fund would be called upon under Clause 84 were difficult to imagine and would be of an exceptional kind. We agree. It is a remote fall-back position. Indeed, it is unlikely that Clause 84 will ever be called upon. However, we believe that it is sensible to make such a provision. It would be an exceptional circumstance in which the assembly could not provide the money in the short-term. If in a substantial national disaster the assembly could not meet the cost, it would apply through the Secretary of State to the Treasury for a short-term loan in order to deal with the matter.

The Government believe it entirely sensible to provide that fall-back arrangement, and it is difficult to see the arguments for not doing so. If the provision were not made, taking the advice of the lawyer of the noble Lord, Lord Dixon-Smith, it would have to be written in. That seems to me to be a very silly circumstance indeed. One should prepare against the day, hoping that the provision will never be used. The noble Lord's comparison with local authorities is, with the greatest of respect to him and his experience, misconceived. The assembly does not have any tax-raising power, whereas local authorities have limited tax-raising powers. It is unlikely that the provision will be used, but it is sensible to make it.

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The point made by the noble Lord, Lord Mackay of Ardbrecknish, amounted to asking what happens if the loan is made but the Commons does not agree to it. That is a risk that one must take, but having regard to the nature of the Treasury, one would imagine that it is unlikely to grant the loan unless it is sure that ultimately supply will be granted by way of a supplemental estimate. In effect, a bid is being made on the reserve, a reserve is being held in the National Loans Fund, and I suspect that the situation would be so unique that few people would doubt the correctness of such a loan being made.

For all those reasons, the clause is sensible. It is right that the matter has been raised in the Committee and I hope that I have put everyone's mind at rest as to its "sensibleness".

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