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Lord Higgins: My Lords, I am most grateful to the noble Baroness for giving way, but this is a little more than a technical point. As I understand it, companies will be out of pocket for a considerable period of time. They will bear a substantial cost in terms of cash flow. I think this is a little more than a technical point.

Baroness Hollis of Heigham: My Lords, I am happy to take up the time of the House to explain the matter, if your Lordships wish. Employers will be able to set tax credit payments against their PAYE tax and NICs liability. If they do not have enough PAYE tax and NICs to fund tax credits they can apply in advance for funding from the Revenue. Many small employers will gain a cash flow advantage from the measure in this year's Budget which increases the number of employers who can settle their tax and NICs liability to the Revenue quarterly rather than monthly. As I say, I am happy to continue this discussion through correspondence.

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I was asked about the American and the Canadian experiences. I think it is inappropriate to bring those experiences to bear. The American earned income tax credit is paid not as you go, but yearly and retrospectively--so it cannot operate as a work incentive--and most money is paid to higher earners. Therefore those on lower earnings receive least and those on higher earnings receive most. As I said, it is paid yearly and retrospectively. It tends to be a lump sum that is most often used to pay for a holiday or for white goods. As I say, it is paid with increasing generosity the more you earn. There is absolutely no comparison, except as regards the words "tax" and "credit", between what the American system does and what our system proposes. As for the Canadian system which was also described, it was not integrated into the tax system. It was not paid through the pay packet but into bank accounts rather like family credit. It has been scrapped and replaced by a child based universal benefit which is akin, of course, to our own child benefit. Again there is nothing for us to learn in this regard from either the American or the Canadian experiences.

Finally, I was asked about accountancy. There are absolutely no tricks or anything underhand about this; it is all entirely transparent. I confirm that the national accounts will show the tax credits as government expenditure, as required by the new European accounting convention which was introduced from 1998. They will be treated in the same way as MIRAS, no more and no less. The Government's presentation, where different, will be capable of being tracked in so far as the convention changes the conversion of the national accounts basis. Again I am happy to explain this point further if your Lordships wish. The tax credits will be treated as government expenditure in the same way as MIRAS. The change over from 1998-99 will be perfectly clear and one will be able to track that in a transparent way in government accounts. We are, of course, in that respect conforming to international accountancy standards.

As I say, this has been an interesting debate. Your Lordships must forgive me if I have not answered all the points that have been raised. We know that there is a problem with regard to the interface between tax, benefits and wages. We know that what deters people from entering work are the relatively low wages paid when they first start work; the insecurity of those wages compared with the security of benefits; and especially if they are lone parents, the cost of providing alternative quality care for children. One way forward for any government is to reduce the value of benefits, another is to make more shallow the benefit tapers, but that extends dependency. Or you can increase universal benefits, but that is expensive. Instead what the Government are doing--which I believe is right--is to protect benefit levels for those who are unable to work. We are strengthening those benefits that can be carried into work, such as child benefit and child maintenance. Through a combination of the minimum wage, reduced income tax, reduced National Insurance and WFTC we shall make sure that work pays.

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Since the 1998 Budget, 1.8 million people have seen their income tax bills halved and a further 900,000 people have been removed from tax altogether by national insurance changes. WFTC will help two groups in particular: lone parents, and married couples with children where only one partner is in work. WFTC will encourage lone parents to come off income support and move up the income ladder into work while it will keep married couples already in low paid work from descending into benefit systems when their jobs become more precarious or their hours or wages are cut. In other words, it is a help to lone parents and it is a hand to stop couples descending. We believe that WFTC will support families and will address their poverty. As my noble friends Lady Turner and Lady Lockwood emphasised, it will particularly address the problem of child poverty. WFTC will lift 700,000 children out of poverty. That will be no small achievement. I hope that your Lordships will give this Bill a Second Reading.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

Local Government Bill

7.16 p.m.

Lord Whitty: My Lords, I beg to move that the Bill be now read a second time.

This Bill is part of the Government's determination to deliver on their manifesto promises for renewal of our democracy and modernising delivery of services. Local government is central to both of these objectives. Hence we have embarked on an ambitious programme--nothing short of fundamental reform and modernisation of the local government system in England and Wales. This cannot happen overnight. Nor can it happen simply by tampering with bits of existing legislation. To bring that about we need a new framework; a new partnership between national and local government; and a new partnership between local government and its own communities. That requires a series of legislative initiatives--of which this is part--to improve local democracy; to promote the well-being of communities; to put in place new political structures; to establish a new ethical framework for the conduct of local government; to improve delivery of services on the basis of best value; and to improve financial accountability of local government.

All this will take time. It is these last two items--best value and local financial accountability--that are the essence of this present Bill which sets out a framework for achieving them. In that sense it is a framework Bill. Secondary legislation will play an important role in implementing both best value and local financial accountability. There are good reasons for this approach, and I make no apologies for it. This Government do not see themselves as the sole source of wisdom on the delivery of public services; we intend to continue to work constructively in partnership with local government itself, to the benefit of local people, and to ensure that the Bill is drawn flexibly enough to accommodate the lessons which are learnt.

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The Local Government Bill is about improving both local communities and the lives of local people. Good local services at reasonable cost are vital to people's quality of life. This Government want councils to deliver services that match local people's needs, with high standards of both quality and efficiency. People deserve a bigger say in the services their councils provide, with more transparency in the way decisions are made. This Bill, together with the draft Bill on political management structures and a new ethical framework which we have just published for consultation, are the first steps on the road to modernised, rejuvenated local government.

History has shown that councils succeed when they put people first. Successful councils work with partners to develop and achieve a vision for their locality. They strive for continuous improvement in the delivery of local services. They involve and respond to local people and local interests, building effective relationships with businesses and other local organisations.

We are also aware that many local authorities already deliver high quality services--services of which we can all be proud. But it is also true that in most local authorities there are some areas of service that are delivered to lower standards or at higher costs than others. And there are a few local authorities whose total administrative system of delivery is sadly lacking in terms of quality and of efficiency. The loser in those cases is not the council but local people.

Today the Audit Commission has published two reports on the performance of local authorities for 1997-98. One is a compendium of data across a wide range of services; the other is on services for people with special needs. While it is true and desirable that performance has generally gone up over the past few years, there are still too many authorities delivering services which do not come up to scratch. Authorities should be congratulated on their often considerable successes. But, from the Audit Commission report, there is clearly substantial room for improvement. Local people deserve more. The best value concept will help authorities to meet this challenge.

The Government believe strongly in local government. We believe that local people deserve better. That is why we are introducing this Bill now. It provides the foundation to take forward the modernisation process. Nothing less than a fundamental change in culture is needed. It is councils themselves which need to achieve this, pursuing modernisation at the local level in a way which suits the needs of local people. Central government's responsibility is to establish the framework, and we will work with local government and others to bring about the necessary changes.

The Bill does not relate to Scotland. The modernisation of local government in Scotland will be a matter entirely for the new Scottish Parliament and Scottish Executive. It will, however, apply to Wales. This is a particularly important Bill for Wales. It is the first piece of primary legislation, following the Government of Wales Act itself, to reflect the role of the National Assembly for Wales. The assembly will

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take over the responsibilities that the Secretary of State currently exercises for local government in Wales. The assembly will have responsibility for administering best value in the Principality and for exercising the new reserve powers to regulate council tax should that prove necessary.

Perhaps I may turn to the details of the Bill. Part I deals with best value. Best value is about improving local services. It is about local government providing high quality local services at reasonable cost that match local people's needs. In doing so it must bear comparison with the best that is on offer from both the public and private sectors. To achieve that, best value authorities will have to show continuous improvements in both quality and cost-effectiveness of the services they deliver to their local people. It is a duty that the authorities will owe to their electorate and to the communities that they serve. No longer will they be able to provide minimal services at minimum cost in a way that may suit them as providers rather than the people who use the services in question. Best value rings a death knell for that approach.

Local people deserve services delivered to clear and explicit standards. That is a novel concept for some people; but for modern authorities it is already a part of their everyday thinking. They recognise that people come first and that the council's role is to lead its community in achieving a delivery culture; where improvement and change are possible, and where continuous improvements can be made by building relationships and working in partnership with local businesses, the voluntary sector and the local community at large.

Best value provides a framework for local authorities to deliver these improvements. It will apply to all local authorities that have tax-raising or precepting powers. That will include the Greater London Authority, subject to the passage of the legislation to establish that body, and fire and police authorities. They will all have to account for their performance by making it clear to the communities they serve what targets they have set for themselves and what they intend to do to meet them.

The Government will add rigour by creating arrangements for independent scrutiny to ensure that all local authorities comply with the duty of best value and improve their performance. Where authorities fail to do so, the Government intend to take reserve powers to safeguard the interests of the local people and to ensure that appropriate action is taken to put matters right. Normally, that action will be for the authorities themselves to take. But the Government will not shrink from acting to counter serious failure.

It may be helpful if I elaborate briefly on some of these points. As I have said, best value authorities will owe the duty of best value to their local community. The general duty, set out in Clause 3, requires them to put in place arrangements to secure continuous improvements in the delivery of their services with regard to a combination of economy, efficiency and effectiveness. In doing so, they will have to challenge whether a service is necessary, consult with local people to establish what standards local people expect, compare

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their performance with others providing similar services, and, where appropriate, use competition to achieve value for money. The benefits in this approach are twofold: driving up standards will benefit not only the local community, but also the authorities in question, by delivering savings which will help pay for far better services in the long run.

For local people to be able to judge how their local council is performing, a robust audit and inspection regime also needs to be put in place. The Bill provides for that. There will be a rigorous external audit check of local authorities' local performance plans and their management systems. Clauses 7 to 9 provide for that. This will, I believe, go a long way to establishing high standards of probity in local government and to delivering genuine local accountability.

It is, however, unrealistic to expect audit alone to provide the in-depth scrutiny of performance that best value requires. Therefore, a framework for best value inspections will also be put in place to back up the audit of performance plans. That is set out in Clauses 10 to 13. The Bill provides power for the Audit Commission to carry out best value inspections. In doing so, it will complement the valuable work carried out by existing inspectorates such as the Social Services Inspectorate, Ofsted and HMIC. The Government made clear in the Local Government White Papers for England and Wales that they intend to establish an inspectorate forum to bring together and co-ordinate the actions of these different inspectorate bodies. These new scrutiny arrangements will have the capacity to respond to the needs of joined-up government.

If these inspections, or indeed any other source of information, alert central government that things are going drastically wrong then we need to have some opportunity to redress the situation. While we envisage that intervention will be triggered by a report in most cases, in some cases other evidence may be critical and might provide the basis for intervention. I cite, for example, evidence of serious public harm or risks to vulnerable groups--in children's homes or other domiciliary care. That may emerge not from reports but from public complaints or possibly media exposure. In these cases it may not be desirable for the Secretary of State to wait for an inspection report to be produced before any action can be taken.

The Bill therefore provides, in Clause 14, for the power of intervention by the Secretary of State in England or the National Assembly in Wales. That intervention power will be used as a last resort when all other measures have failed. Wherever possible, best value authorities will be given the opportunity to remedy their own shortcomings. Intervention in an authority's affairs will be appropriate and proportionate to the nature of the failure. In the vast majority of cases authorities will have been given the opportunity to make representations about that failure.

These measures are necessary to safeguard and protect the public; in other words, those who will be most affected by the failures of such local authorities. Such powers are by no means unique. The School Standards and Framework Act 1998 provides powers

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similar to those contained in Clause 14(2) for the Secretary of State for Education and Employment to intervene in the case of failing local education authorities. There is also a precedent for the powers contained in subsection (5) of Clause 14: the Secretary of State may take over a function from an authority under Section 164 of the Housing Act 1985.

The Government have put the onus of the duty of best value onto the local authorities. It is for them to devise how they go about achieving that to the satisfaction of their local communities. Local aspirations and local focus will be a major feature of the reviews and performance plans that a local authority draws up. In doing so, we think it right that a certain element of national focus relating to performance indicators should be required from them too. Otherwise the whole process would be meaningless.

Clause 4 of the Bill therefore provides for national performance indicators against which the performance of a council will be evaluated. We are not primarily concerned with inputs but with the outcomes. This gives a local authority the freedom to deliver its services using traditional or innovative methods or any other combination that it chooses. It is going to be a learning process; lessons will be learnt from both mistakes and successes. The best value pilots are already showing the way. We will disseminate the lessons learnt from the pilot schemes and issue guidance to help local authorities to achieve best value.

This Government believe that people matter; that local government matters; that a modernised local government in tune with the needs and aspirations of local communities matters. We aim to deliver a truly responsive system of local government, taking the lead in driving forward the changes that local communities have indicated that they want.

In addition, the Bill will definitively abolish compulsory competitive tendering. It will remove the regime of CCT, with its conflicts; its bureaucratic and procedural rigidities; its counter-productive disruptive effect; its detrimental effect on employment and environmental standards; and its uneven effect on delivery of services. The Bill will return to local authorities the right to take their own decisions on the means of delivery in house; in partnership; or contracted out. But it will do so within an entirely modern framework of best value.

Partnerships and innovative methods of delivery of services will all help to give effect to these changes. They will allow local people and local government to take ownership and ensure that local people get the services they want. Local government will once again have the opportunity and freedom to think innovatively about how it can deliver improvements in providing services and reassess its priorities.

The Bill will help to create a climate where modern local authorities can build progressive relationships and secure better ways of working; a better environment where all sections of the community feel that they are stakeholders in their own future and where the diversity which goes toward building a thriving community is recognised but balanced with the need to achieve consistent excellence in results.

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Part II of the Bill, the other side of the modernisation agenda, deals with council tax regulation. It is about improving local financial accountability. Strong local financial accountability means that local people can have an impact on their council's spending and taxation decisions.

As the Government promised in our manifesto, we have ended crude and universal capping. There was no pre-announcement of capping limits for 1999-2000 because the Government want local authorities to take full responsibility for their own decisions on spending and taxation, taking into account the views of local people instead of the government cap defining their budget.

However, we do need in the last resort to be able to protect local taxpayers from irresponsible increases. Therefore, as we also promised in our manifesto, we intend to retain reserve powers--the reserve powers set out in Clause 29 and Schedule 1 to the Bill. Of course, we hope and expect that all local authorities will be responsible and prudent, providing their taxpayers with good services at a price they are prepared to pay. However, the Government cannot shirk their responsibilities. We need to be able to take action against those councils that persistently act irresponsibly. The new reserve powers will enable us to do that.

These reserve powers are significantly more discriminating and fairer than the existing capping powers. They are capable of looking at a council's budget increases over a number of years, starting from 1998-99. That will allow Ministers, for example, to exempt councils which had small increases in earlier years or to limit councils' budgets which had cumulatively, rather than in a particular year, increased by more than a prudent amount. And it will be possible to have different principles for councils meeting certain criteria--such as beacon authorities, or those which can clearly demonstrate that they have the support of local people for the increases, or those whose council tax is only a small proportion of the council tax bill.

The new powers are also more flexible than the existing capping legislation. They will allow us to take alternative approaches towards those authorities which we consider to have set excessive budgets, as well as still being able to designate authorities in-year as is currently the case.

These powers can be used to allow councils whose increases are limited to reduce their budgets in a following year or over a series of years rather than always requiring them to make the full adjustment in one year. That would mean that authorities could save the costs of re-billing and take a planned approach to making future savings rather than having to make immediate crude cuts in their budgets. Where, instead of designating a council, a notional amount is set, again the local authority will avoid the costs of re-billing and will be given time to re-plan its spending for future years.

Hence the new reserve powers will allow us to adapt to changes and take into account the differing circumstances of different authorities--to the benefit of

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both the authorities and their tax payers. But I should emphasise to noble Lords that they are reserve powers: to be held in reserve and used only if absolutely necessary.

As background to these measures, the Government have also provided greater stability in council funding to help local authorities plan their expenditure over a longer time period. We have announced the aggregate grant provision for councils for the next three years and stabilised the formula for distributing grant. That will help authorities to manage their budgets better. And over the next three years we shall be carrying out a review of the way in which we distribute grant to find a fairer way of doing it.

We do, in all of this, need to safeguard the national interest and the interest of national taxpayers. The third part of the package of measures is therefore aimed at this. The council tax benefit subsidy limitation scheme protects the national taxpayer from the council tax benefit costs arising from local decisions to increase council tax to an irresponsible degree. This scheme is already in place for the current financial year using existing secondary legislation under the Local Government Finance Acts of 1988 and 1992. The relevant provision of this Bill is a relatively technical provision ensuring that precepting authorities which exceed the guideline can pay their contribution to benefit costs to the billing authorities.

We believe that councils which make large increases in council taxes should be able to rely on the national taxpayer to pick up the bill for the resulting additional council tax benefit. We have therefore set a guideline for council tax increases which will be eligible for council tax benefit subsidy but above which any increase will be partly ineligible.

Councils setting council taxes up to the guideline levels will continue to receive subsidy as now. However, if a council increases its council tax by more than the guideline, some or all of the costs will be borne locally. Local council taxpayers will, therefore, collectively meet more of the costs of council tax benefit resulting from excessive council budgeting decisions.

We recognise that the amount of council tax revenue met by benefit is higher in some local authorities than in others. We are protecting those poorer areas by ensuring that they are treated as if they had the average proportion of council tax revenue met by benefit. And the benefit entitlement of individuals is not affected by this scheme: council tax payers on benefit will not be penalised.

The Government acknowledge that modernising local government will take time and will be demanding. The local government White Papers have mapped out the way forward for 10 years or more. We are legislating on these issues now because we are ready to do so, because local government as a whole wants us to do so and because local people everywhere will benefit.

Through this Bill we are honouring our commitments to end crude, universal council tax capping and compulsory competitive tendering. In their place we shall strengthen local financial accountability and provide new protections for the council tax payer; and

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we shall introduce a new duty of best value to raise the standards of public service and modernise public procurement.

The Bill has been broadly welcomed by the public and private sectors, by employers and employees, by local government across the parties and by the trades unions. The Bill has come to us from another place, where I am happy to say that it has already been improved. Members of the lower House have taken the opportunity to refine, clarify and fine-tune some of the provisions, and the Government have made some more far-reaching changes to strengthen the Bill. I consider it now to be a strong, robust and rigorous Bill. I nevertheless welcome your Lordships' further scrutiny of this legislation and look forward, as always, to some thoughtful, well-informed and lively debates from the many noble Lords who have a strong interest in and long experience of local government.

This Government's modernising programme for local government is about the way councils work and how they can be more in touch with the people they serve. The Local Government Bill places local people at the heart of local government reform. It will improve the effectiveness of all local authority services throughout England and Wales and thereby give a better deal to local people. I commend the Bill to the House.

Moved, That the Bill be now read a second time.--(Lord Whitty.)

7.41 p.m.

Lord Dixon-Smith: My Lords, I am sure that the whole House will join me in thanking the Minister for his detailed and careful presentation of this Local Government Bill. The House should be in no doubt of the significance of the Bill. It sets out to influence the way in which those involved in local government administer the moneys that they have at their disposal. Local government is responsible in one way or another for around 20 per cent. of all government expenditure, and it is that which makes the Bill so important; it is that which indicates the care and attention that we must give to this subject.

Despite what the Minister said, the Bill comes to us in such a form that we cannot be certain whether it will improve the environment in which local government works or whether it will do harm. During the course of our debates we must do what we can to remove the chance of there being any ill effects, even though that will not be a straightforward matter. I say that not just because I am an Opposition spokesman, whom you would expect to be sceptical about the Government's motives, but because the Government's presentation of their actions is now recognised as too often being different from what is actually happening. One only has to look at the last Budget to see that. It was received with almost rave reviews on the day, rapture which rapidly changed as people had time to study the real effects rather than the presentation.

I can think of no better way to illustrate this than to relate what I found last week when I calculated the wages of my employees on my farm. There are only two of them. It is not that much of a job but I find that it

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keeps me in touch with what is going on. It was the first week of the new financial year and fresh tax codes had been handed down by the local Inland Revenue office. As a result, my farm workers' PAYE is nearly £1 a week higher than previously. What a difference between presentation and practice.

The long march from the establishment more than a century ago of local authorities whose function was to bring together the various rating authorities for specific purposes which had previously existed and to integrate them in the interests of the communities that they served, through to the position today where local government is required to be a major provider of national services with a high proportion of funds coming from national government, has had a dreadful inevitability about it. At the same time, there has been a commensurate diminution in the independence of local government, matched by an increase in central domination. That was not the act of a single government. When Tony Crosland said, about 30 years ago, "The party is over", central domination became a fact. What has happened since has simply made that fact explicit.

The question we have to ask is whether this Bill will herald a new and more generous approach to local government from the centre than we have seen in preceding years. The philosophy of "best value" authorities is not new. Good local authorities--colleagues from local government who are here in this Chamber tonight will recognise this--have operated along "best value" lines for many years. Indeed, it was the actions of individual local authorities putting services out to tender, and the success that they achieved, which was the inspiration behind the legislation for compulsory competitive tendering. My old authority, Essex, invariably had some aspect or another of its services under review with a view to restructuring and improvement.

Why, then, am I hesitant? Are the members of a local authority its masters or is someone else? What do we find in Clause 5 of the Bill? It states:

    "The Secretary of State may by order specify a period within which an authority is to review all its functions". Subsection (4) then states:

    "The Secretary of State may by order specify matters which an authority must include in a review of a function under this section". That is unprecedented power to intervene at the local level without apparent reason. It is idle to deny that some circumstance could be conceived of which might justify such action, such as a complete failure by a local authority to carry out its responsibilities; but that is not what the Bill says. The circumstances under which this power might be used should be clear on the face of the Bill, and this is one change that we shall certainly seek to bring about. It seems to me that, unless we do so, the Bill will be in conflict with the Labour Party's manifesto statement:

    "Local decision-making should be less constrained by central government, and ... more accountable to local people". It is all very well to protest that these might be just reserve powers, but the power to cap the council tax was just a reserve power when it was introduced.

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It must be remembered that local government has been accustomed for a long time to using comparative performance statistics to measure relative performance. The Chartered Institute of Public Finance and Accountancy (CIPFA) produces an annual statistical analysis of each local authority and compiles an annual report that is compulsory reading for any student of local authority life. No chairman of a finance or resources committee would dare be unfamiliar with his authority's standing in those reports; and no chairman of a service committee would neglect to avail himself of what is often a useful tool in the annual negotiations over his authority's budget.

The same can be said of Audit Commission reports. The Audit Commission, which is to have a central role in auditing "best value" under the Bill, produces reports that are often more useful than cold statistical comparisons as they set out comparisons between authorities that are generally similar in character. It already seeks to provide useful management information to its clients and its enhanced role is generally welcomed by local government. As an aside, one might have more confidence in this process if central government itself sought to become a "best value" authority.

It is interesting to note that the underlying philosophy behind "best value" as enunciated in the Bill is that it can be a continuous process that has no end. In the philosophical sense that is correct, but care will be needed if theory and practice are not to come into conflict. Anyone who is familiar with the problems of managing a large organisation will know that there must be some stability for people to work well. People need to know with certainty how they are to do their job. With local government, most of those involved have service to the public in one way or another as their main remit. Unless care is taken to keep a proper perspective and balance there is a danger that they may be distracted by the task of fulfilling the annual best value plan which may become more important to them than actual service provision. Local authorities, with only a few notable exceptions, are good at what they are required to do; and they are better at it when they are not distracted by having the rules changed or the size of the pitch altered. We shall seek to remove the possible rough edges that exist in this part of the Bill in its present form and to create greater certainty for local authorities generally.

A different aspect of Part I of the Bill also causes me and my colleagues some concern. Clause 1 lists all the categories of authority that are to be "best value" authorities. Consideration of that list and the functions of local authorities reveals with absolute clarity that local government works closely with a number of government departments. The Department of the Environment, Transport and the Regions, as the main channel for funding, is clearly the promoting department, but the Home Office is involved with police and fire services; the Department of Social Security and the Department of Health are committed where the elderly, handicapped or disadvantaged are involved, and libraries bring in the Department for Culture, Media and Sport. Other departments are also involved.

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The Bill says nothing about how the ring is to be held between those departments in matters of "best value" or "capping" where the Secretary of State can determine performance indicators and standards. Perhaps in his reply the Minister can say something about how that particular aspect which is implicit in the Bill is to be dealt with. It may not be within the responsibilities of local authorities, or within the remit of this Bill, but it is certainly of interest to them. In any event such matters are very much the proper concern of this House. Anything that the Minister can say to explain how that co-ordination is to work will be most welcome.

The Labour Party manifesto states that

    "although crude and universal council tax capping should go we will retain reserve powers to control excessive council tax rises". Part II of the Bill and Schedule 1 give effect to that pledge. Once again we see an interesting contrast between the intention in the manifesto and the wording of the Bill or reality. In Schedule 1 we find that according to the provisions of what will be new Section 52B of the Local Government Finance Act 1992,

    "If in the Secretary of State's opinion the amount calculated by an authority as its budget requirement for a financial year ... is excessive, he may exercise his power to designate or nominate the authority under section 52D below". New Section 52D provides:

    "This section applies if in the Secretary of State's opinion (reached after applying section 52B above) the amount calculated by an authority as its budget requirement for the year under consideration is excessive". That is as well rounded a circular argument as I have heard for a very long time. What local government is being asked to accept is the replacement of a system that is unsatisfactory but certain with a system that may be satisfactory but is uncertain. The House will not be surprised if I find that situation rather less promising than the noble Lord the Minister. We shall seek to remove the random possibilities that the present Bill permits and produce a more defined situation as the Bill progresses through the House so that it is clearer what the phrase "reserve powers" means.

This Bill has received a cautious welcome from members of all political parties in local government. We can be certain that the motivation for that will be different from political party to political party and from local authority to local authority. Some of the motives may even make an old campaigner like myself suspicious. Be that as it may, there is the possibility that the Bill could mark a new start for relations between local and central government. Whether that happens will depend in part on what we do to the Bill during its passage through this House. Certainly it is by no means perfect at present. I look forward to many interesting contributions to this Second Reading debate and to the prospect of some fascinating discussion as the Bill passes through its further stages. It is to be hoped--for we must do it--that we can improve the Bill so that the expectation of local councillors, of those who serve in local government, and of local communities, are not disappointed.

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7.57 p.m.

Baroness Hamwee: My Lords, we too thank the Minister for his introduction to the Bill. I should perhaps offer an apology for the mirth from these Benches at his comments about looking forward to Committee stage. We too look forward to Committee stage. Judging by the speakers in today's debate, it will be an extremely well informed Committee stage. I shall resist with some difficulty responding to many of the comments of the noble Lord, Lord Dixon-Smith. I shall try to confine my remarks to the Bill rather than history.

To use a sporting analogy, this is a Bill of two halves. The first half sees local government clearly in the lead, although it is a shame that not quite as many goals are scored as might be. But with council tax benefit limitation and capping in the second half, I believe that central government scores to the disbenefit of local government. Perhaps this means that the Bill does not produce what has become known as a result. It is interesting to deal with two possible contradictory provisions in conjunction. Best value is or should be about achieving what is best locally, which should permit maximum local autonomy. Capping, whether crude and universal or sophisticated and partial--I leave noble Lords to read what they will into that phrase--involves central direction and restricts local decision-taking. The great unknown perhaps is how the Government's assessment of each best value authority may influence capping.

The Bill has been criticised for the best value provisions also being centralised. Indeed, the long Title states that the Bill makes,

    "provision imposing on local and certain other authorities requirements relating to economy, efficiency and effectiveness". I stress "imposing" and "requirements". If requirements are to be imposed, those who are intended to benefit should do the imposing. However, we welcome the end of CCT--not the end of competitive tendering but of compulsion--and that end cannot come soon enough. No doubt the Committee will explore the end date and transitional arrangements. I understand that a number of authorities, particularly some of the new unitaries, have contracts that will need to be re-let before 2nd January 2000. Some of them are having to re-let on 1st January. I hope that that little wrinkle can be ironed out.

Perhaps the hardest part of competitive tendering is writing the specification--articulating the criteria--and that will still apply. I hope that the new regime, as well as looking ahead, will encourage reporting back on problems and on failures as well as success. There is a danger that innovation will be stifled by fear of failure. Best value should encourage innovation, which necessarily implies a degree of risk.

It would be helpful to know what is coming from the best-value pilots. It is probably too early to apply any experience, which emphasises how unusual it is to establish pilots, then lay the legislation and assess the pilots. The noble Lord, Lord Dixon-Smith, referred to the relationship with central government bodies. Other bodies are involved in the exercise and need to be part

12 Apr 1999 : Column 582

of the relationship, such as hospital trusts and health authorities. We look forward to exploring how those relationships can work.

The best-value authorities are to secure "continuous improvement" in the exercise of their functions. That duty is of a high order and I wonder whether it is practicable. I am aware of the views that it is not possible to cover all best-value authority functions in five years--certainly if local communities are not to be engaged. That raises the question of whether authorities should be looking first at their functions or primarily at the needs of their communities.

The criteria to which authorities are to have regard have an oddly 1980s flavour. We are all familiar with economy, efficiency and effectiveness. We would like to become more familiar with the wider responsibilities of local authorities--sustainability in its widest sense. The proposal that authorities should be able to and will have the duty to do what is in the social, economic and environmental interests of their areas seems to be on the back burner, save in the case of the new London authority. That power and duty come close to the Liberal Democrat aim of a power of general competence. I hope that by referring to the two together I am not further damaging the prospects of that proposal becoming law. We would welcome that extended duty being pursued.

Of course there will be guidance, but I would like to see the overarching power and duty to which I have referred in place; if they are not, I would like to see the criteria covering matters of sustainability, including social concerns as well as environmental and economic concerns. I include matters of equity. Sustainability offers the opportunity to authorities to undertake the difficult but necessary task of balancing competing and sometimes contradictory concerns.

The Minister said that the Bill in part is not a lot more than a framework, but I fear that it is too easily read as a framework for more central regulation, not one to be fleshed out by local government. Be that as it may, the framework itself seems quite prescriptive.

Clause 3 concerns consultation talks about the representatives of various groups but not council officers and staff--which prompts me to ask, "What about the workers?" I hope that that is not a recipe for a big focus group. Flexibility is needed to enable the most productive local involvement, and the methods for consultation and extracting from local people what it is they want but have probably not articulated are likely to vary greatly between authorities. A lot of useful work is being done on how the leadership role can successfully involve the community. Research indicates problems in a local authority inviting chosen persons to join in. Traditional structures often reinforce divisions between the joiners and non-joiners. Those who are identified as joiners often become uncomfortable at being seen as representative. Effective consultation is a fragile and elusive exercise and goal. It is not just a box on a flow chart.

If our country's culture were more one of local autonomy, much of the Bill would be unnecessary. The Secretary of State obviously feels the need to keep his finger on the pulse of every best-value authority, but it

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is difficult to operate while one's pulse is being taken. No doubt the House will spend a good deal of time on the Henry VIII provisions. They are said to be benign and aimed at helping local authorities. When I last spoke about a benign Secretary of State, my noble friend Lord Russell said that, by definition, there was no such thing.

We on these Benches have no problems with enabling local authorities to have freedom from obstruction in achieving best value or with conferring any powers necessary to achieve that. Perhaps that is the Henry VII power, because he was keen on good administration. It will not have escaped the House that if best value to local authorities were not reliant on specific legislation for each function and its exercise there would not be the need for such a provision.

We are concerned about the possibly limited extent of a provision confined to,

    "different provisions for different cases". I hope that that is not a hint of inappropriate lollipops for beacon authorities. Until Parliament can amend secondary legislation, the provisions for affirmative resolutions are of limited value.

Having said that and despite my criticisms, there is much to welcome in Part I of the Bill. We would welcome it, if Mr. Secretary Henry Tudor cares to use his power to scrap capping altogether--and it is arguable that capping is a huge constraint on achieving best value. However, I do not seriously expect that to happen. Capping powers go against community leadership. The arguments against capping are well rehearsed. Democracy and governance are better served by the ballot box than central control, but the worst of all worlds is central control without clear criteria.

This is the first year since the early 1990s that government have not set out in advance what will be the capping criteria. Another way of expressing that is, this is where capping started. In the past, capping criteria were based on increases in budget and spending in relation to the standard spending assessment. That emphasis seems to have shifted to controlling tax increases, and the Government have quietly amended their definition of the SSA so that instead of being an estimate of the need to spend, it is now the amount of spending for which the Government will provide grant funding.

Best value places great emphasis on consultation and community involvement. If the cause of democratic renewal is truly to be served, central government must release their power to cap. I appreciate that there are two entirely opposite points of view. We may see the glass as being half full while the Government see it as being half empty. I accept that the provisions in this part of the Bill reflect the Government's manifesto.

We have no more enthusiasm for council tax benefit limitation. A Written Answer by the Minister in another place revealed a list of 119 local authorities, plus the Local Government Association, the Association of London Government and others which were opposed to it; and those were merely the authorities and organisations which had expressed their opinion.

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My greatest philosophical objection is because the scheme further confuses the public understanding of who is responsible for what when it comes to fixing levels of services and council tax. My greatest practical objections are that the scheme will hit poorest areas hardest. I do not believe that that is administratively efficient, quite apart from not being equitable. What is its effectiveness--to use another of the three Es? To shift the Government's responsibility to meet the cost of welfare benefits is the clear answer. We have a straightforward disagreement with the Government. We believe that benefits are a central matter, not a matter for each local authority to bear. That is not an argument that local government should avoid its proper responsibilities. It is an argument that we should all bear welfare costs. They should not be borne by those who happen to be the neighbours of the beneficiaries.

I recognise that the Government are set on these measures. There is much to be done to make local taxation more easily understood, to provide for a direct link between electors and taxpayers and the taxing authorities. However, I do not believe that these measures are one of those steps. I fear that they will not achieve Improving local financial accountability--the title of the Green Paper.

We support part of the Bill. We wish that we could support the whole of it. But to use the words in the preamble to the European Charter of Local Self-Government we are,

    "convinced that the existence of local authorities with real responsibilities can provide an administration which is both effective and close to the citizen". We should like to move further towards that ideal than the Bill enables us to do.

8.11 p.m.

Lord Hunt of Tanworth: My Lords, it is a great pleasure to follow the noble Baroness, Lady Hamwee, because we worked together on the Select Committee on relations between central government and local government which reported in 1996. I believe that all of us felt that the state of those relations was unsatisfactory and change was needed. Since then--I must declare an interest--I have become honorary president of the Local Government Association, although I am probably one of the few people in the Chamber tonight who has not had direct experience in local government.

I welcome the objectives of the Bill which, together with the draft Local Government (Organisation and Standards) Bill, aim to establish a more effective and at the same time more accountable local democracy. In particular, I welcome the replacement of compulsory competitive tendering with a best value regime and the substitution of reserve powers to cap budgets in place of crude and universal capping.

However, I believe that some important points remain to be clarified. That is because, as the Minister acknowledged, in many respects it is a framework Bill only, with the details remaining to be filled in-- and as we all know, only too often the devil is in the detail. I give three examples of what I mean, but there are others.

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First, on best value, Clause 3 succinctly lays down a general duty of combining economy, efficiency and effectiveness, and no one could quarrel with that. But it also says that local authorities must heed any guidance issued by the Secretary of State. I understand that already in draft is interim guidance which will deal with practical matters which local authorities will need to put in place prior to April next year, such as performance indicators, minimum performance standards, fundamental performance reviews and the content of local performance plans. But, as has already been said, there will also be a need for guidance on other matters which local authorities would be expected to take into account in the exercise of their general duty of achieving best value. I refer to such matters as equity, sustainable development and consultation with staff, which I understand during debate in another place the Minister said would not appear on the face of the Bill but would feature in guidance. I hope very much that we may see that draft guidance before we reach Committee stage because that would help the House a great deal. I hope also that it will not be too prescriptive.

The hope that the guidance will not be too prescriptive is not just because local authorities naturally want the maximum freedom to act and to innovate in fields that are properly theirs. It is also because the best value pilot schemes already in place show that there needs to be scope for local variation and innovation according to local circumstances. And authorities do differ. Getting the right balance in the guidance between central prescription and local discretion will be crucial to making best value a success. I hope very much that that guidance will be available in draft before we get too far in our consideration of the Bill.

My second example of missing detail relates to Clause 14, which is equally unspecific about the basis on which the Secretary of State would use his powers of intervention where an authority fails to comply with the requirements of best value, in particular his powers to intervene in urgent cases without hearing representations from the authority concerned. I understand that a draft protocol on the use of those intervention powers has been and is under discussion between the DETR and the LGA and that it was touched on at Committee stage in another place. But I know that the LGA still has some continuing concerns about the protocol and the nature of these intervention powers. Again I hope that we may be better informed about the matter either when the Minister winds up tonight or at a later stage.

My third and last example relates to capping. In many ways the Bill is not inconsistent with the recommendation made by my Select Committee in 1996 that capping should,

    "be discontinued as a standard procedure, although there should remain a reserve power to cap where an authority has set a clearly unreasonable budget". The emphasis in Clause 30 and Schedule 1 to the Bill is on the mechanics for the use of reserve powers and says simply that whether a budget is excessive will be determined by the Secretary of State by reference to a set of principles which he will establish which must contain a comparison with an earlier year.

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That may all be very reasonable, but I should have thought that before this House passes the Bill we would wish to know more about the key principles governing the use of reserve powers of intervention. It is arguable that those should be spelt out on the face of the Bill, although I understand that amendments proposing that were not accepted by the Government in another place. I cannot understand why putting the key principles into the Bill, even if they had to be supplemented on some aspects by annual guidance, would fetter in any way the necessary reserve powers of the Secretary of State. It would, however, let local authorities know where they stood and would remove any suspicion that those reserve powers were going to be widely used or might be akin to crude capping by another name. I do not believe that that is the intention, but until one has some understanding of the basis on which the reserve powers of intervention will be used, it is difficult to be sure.

I have concentrated on parts of the Bill where I suggest fuller information about how the proposed changes would work would make it more comprehensible, fairer and more acceptable. Even then, many people would not think it perfect. I agree with the LGA in wanting eventually to see the complete abolition of capping. Nevertheless, it is an important Bill which ought to make significant changes to the relationship between central and local government and contribute significantly to making local government both more responsible and more accountable. So while having the reservation that there are missing parts which we ought to see and discuss before the Bill completes its stages, I welcome its introduction today.

8.20 p.m.

Lord Bassam of Brighton: My Lords, like many noble Lords, noble Baronesses and local government worthies, I, too, welcome the introduction of the Local Government Bill covering best value and the reform of capping. I welcome it as a leader of a major local authority, as a local government association vice-president and as a local government enthusiast.

For me, the Bill achieves six objectives. First, it frees councils from the bureaucratic nonsense of CCT. Secondly, it fosters a positive attitude to public/private partnership in the provision of public services. Thirdly, it places a rigorous duty on councils to achieve a balance between service quality and the efficient and effective use of public funds to that end. Fourthly, it provides for the inherent potential of local government to adopt an imaginative approach to the provision of local services. Fifthly, it encourages local authorities to work together to secure local services and to share facilities, joint purchasing options, best practice and better value for money though collaboration rather than competition. Finally, it enables local government realistically to begin creating a mixed economy of provision in public services based on locally defined needs rather than a centrally dictated formula driven by the government of the day.

As regards capping, I also welcome the Bill. It moves responsibility for the setting of local taxes back towards local authorities and places on councillors a duty of trust to do so responsibly. Some in local government have

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argued for the complete return of local discretion, together with business rates. Desirable though that might be in the longer term, in the short term, given the complexity of the gearing effects of council tax increases, or potential increases, it is unrealistic.

The Secretary of State's reserve powers to tackle those few authorities which exercise their new-found freedom unreasonably is not unjustified, given the shortcomings of the current system and the difficulties which exist in developing an equitable root-and-branch reform of the local government finance system, which has defeated people for decades. We must protect the public from excessive tax rises. If we did not, we would be failing as a responsible government and that would not be in the public interest. We must have the power to act centrally to ensure that, locally, people do not exceed the remit of their local discretion.

I see the council tax changes not as a financial statement on local government financial reform, but as a kind of government down-payment, or first step, towards providing greater financial freedom for councils. How councils measure up to its challenges will, I suspect, determine how far and how fast the extension of further financial freedoms flow towards local government.

One argument which has been put forward for the end of capping and the return of the business rate is that these will bring about an increased interest in local democracy. Thus, the argument runs, it is the lack of local discretion which prevents local participation in local elections. I do not subscribe to that view. As a councillor in the early 1980s when we had the freedom to raise rates and business taxes, I did not see any noticeably greater interest in local elections. The turnout was little different from today.

Improving turnout figures for local government elections is a far more complex issue than returning to councils the responsibility of raising revenues for services. It is desirable and it is welcome, but it is not of itself the answer to low levels of electoral participation. However, I do believe that other parts of the Government's modernisation and reform package for local government will raise public participation and levels of interest in local governance. In this context, "best value" and the improvements that it offers may have a significant role to play.

Already, councils, my own included as a best value pilot authority, have begun to review performance. They are doing so not as in the past with a top-down management approach, but with the objective of securing services which local residents generally want. Thus, service providers, from either the public or private sector, work with managers, elected members and the service-using public to determine the level, quality and cost they believe appropriate to the delivery of the service they want to achieve.

That offers local people real choices, involves stakeholders in the design and organisation of a service, whether it be a council's public relations function, the housing repairs system, meals in the community, the maintenance of public open spaces or swimming pools.

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Testing public opinion to secure best value has in the past 18 months become something of an art form. We now have review groups, citizens' panels, citizens' juries, focus groups, telephone and newspaper polls and even referendums--and that is just in one authority.

I said earlier that best value would enable councils to use greater imagination in developing services. Already, there is ample evidence of that. Councils are busy forming "clubs" to deliver services locally, gaining the benefit of cost savings through collaboration. In this respect, the purchasing and procurement of services and facilities has enormous potential. I suspect that in 10 years' time joint purchasing arrangements will exist in most authorities for a range of functions such as air quality monitoring; consumer protection testing services; taxation revenues and benefits services; building control; local searches and inquiries, tourist information, travel information; food law enforcement; and regulation more generally. The work of the CWOIL group of authorities--Cambridge, Welwyn, Oxford, Ipswich and Lincoln--and the joint revenues and benefit project comprising Tandridge, Lewes, Wealden and Brighton and Hove will in that context be seen as groundbreaking.

So, how will we be able to judge whether best value works? What is its performance indicator? I suggest that it is already working. The 40-odd pilot authorities have begun to demonstrate that service quality can be raised and costs reduced through best value. Government expect that £2 billion-worth of public money can be freed up through the best value regime. If Brighton and Hove, for example, can save almost 2 per cent. through its first-year best value reviews, and strike a balance in partnership working to secure such gains, I suspect that other councils can and are already doing so.

The real proof of the progress of best value will become clear when those principles begin to apply to other parts of the public service. Already, there is some evidence of that in the health service and it is having an impact. I can see that, perhaps through joint working between health services and local authorities, the capacity and opportunity for that to extend is infinite. I can see many applications opening up, to the public's benefit, from its widespread absorption into the public service elsewhere.

This Local Government Bill is the first that as a local government leader I have felt able wholeheartedly to welcome in the 12 years I have had the privilege to serve in that capacity. As such, it represents an important first step towards the rebuilding of local trust in local government, the returning of local choices to local councillors and the regeneration and restoration of meaningful local democracy. In that spirit, I look forward to other noble Lords welcoming the Bill and giving it a Second Reading.

8.28 p.m.

Lord Bowness: My Lords, the Minister explained the Bill most fully and recited the powers of the Secretary of State relating to inspection, intervention and guidance which back up the concept of best value. With a straight face--on which I congratulate him--he then told the

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House that the abolition of compulsory competitive tendering is a restoration of the freedoms of local government. Many in local government felt that compulsory competitive tendering prevented them from organising services as they wished. I do not think they were wholly justified in that belief since, as alluded to by the noble Baroness, Lady Hamwee, specification was the key to contracts. To that extent, authorities were always able to set their own standards and they had no need to seek contracts for minimum standards.

Nevertheless, while CCT may now be rejected, we should remember the circumstances which prevailed at the time of its introduction. I do not want to go back too far in history, but at that time many members of the public wondered for whom direct labour organisations ran services. I will not speculate for whose convenience they were run, but it did not appear to many residents that their wishes and the wishes of businesses were obviously at the top of the list. Compulsory competitive tendering swept that away and without doubt has saved the country billions of pounds.

The public suddenly found that complaints had an effect. Council officers, who previously found the idea that an in-house operation could deliver anything other than a perfect service, espoused the contract monitoring role with huge enthusiasm, especially as in well-managed authorities penalties were provided for in the contracts and their own departmental budgets could be advantageously affected by the application of those penalties. For their part, the contractors responded because they wanted to be in the frame for the next contracting round.

Now CCT is to be consigned to history and the new free dawn is breaking. I pose the question: is it? My noble friend Lord Dixon-Smith referred to the powers of the Secretary of State, and we have read the many sections relating to performance indicators and standards, guidance on the nature of consultations, best value reviews and best value performance plans.

The opponents of CCT often accused it of creating a huge bureaucratic process, but is best value going to be very different? Already the advertisements for staff are appearing in that language of management-speak which so often leads to reports and little action. Local authorities are recruiting for best value:

    "We need a creative thinker to join an enthusiastic team supporting BestValue right across the organisation. The role will involve taking part in service reviews, opinion surveys and community consultation exercises, gathering intelligence and disseminating information". And of course it will be the subject of the inspection review outlined by the Minister. I have only quoted from an advertisement at local authority level. The Audit Commission is looking for a director of inspection, based in London:

    "Substantial package including performance bonus and car ... Draft legislation will substantially expand the Commission's inspectoral responsibilities, particularly in support of BestValue in local government. You will engage a wide range of stakeholders in consultation, with a view to developing and continually improving a credible and effective methodology for inspection". It is all to be paid for by the taxpayer and the council tax payer, and between them all these people will not put one paper back upon a library shelf, empty one bin

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    or sweep a yard of highway. We are entitled to ask the Government during the passage of the Bill how much they estimate all this recruitment will cost across the nation.

I do not seek to rubbish surveys and consultations, but so often they become an end in themselves. How often does consultation produce an answer unexpected by those who put the problem out to consultation? How much are all the surveys, consultations and reports going to cost? It will not be good enough to tell us that the cost will be covered by cost savings. We need to know what efficiencies and savings will have to be made to meet the potential cost. In parenthesis, since local authorities include parish councils and community councils, what difficulties will the preparation of these plans and the subsequent costs present to those small authorities?

In the explanatory notes to the Bill the Government acknowledge that there will be compliance costs which will fall on authorities and that they will involve new costs. Have the Government estimated those costs? There is an expectation that they will be contained within existing budgets, except for those relating to audit and inspection. All this is happening against a background of rising council tax bills and in many areas falling services.

Has the Minister not heard from his right honourable colleague the Secretary of State for Culture, Media and Sport about threatened library services, to take but one example, or reduced support for the voluntary sector in other parts of the country? What about the audit and inspection costs to be met by the Government through the revenue support grant? As the explanatory notes state, explicit provision is to be made. How much are we going to pay for the substantially expanding responsibilities? Do the Government know? Will this provision in the revenue support grant represent a complete indemnity to local authorities?

I fear that in the name of removing one piece of perceived bureaucracy, another, even more formidable, is being put in its place. We need to be sure that the benefits of best value are at least equal to those of CCT, where every authority knew what it had saved. But does it now know what it will spend?

I presume that best value is to be defined as in Clause 3 of the Bill, but it remains, as stated by the Minister, a concept. I suggest that we need more realities and not so many conceptual notions. I am not encouraged to read in the Municipal Journal that two-thirds of senior personnel staff are unclear about best value or how to deliver it.

Turning to the new freedoms under this best value regime, the reference in the White Paper states:

    "to help authorities establish authority-wide objectives and performance measures the Government will help authorities introduce a new framework of performance indicators, standards and targets". This suggests a culture of a government who know best rather than one who believe in local freedom. To back all of this up there are the inspections and powers of intervention that have been mentioned by the noble Lord, Lord Hunt of Tanworth. I suggest that the

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    principles set out in that draft protocol between central and local government should at the very least be upon the face of the Bill.

Paragraph 7.27 of the White Paper states:

    "The key strategic choice for authorities is whether to provide services directly themselves or through other means ...

    The guidance (to be issued) will emphasise that retaining work in-house without subjecting it to real competitive pressure can rarely be justified". It then lists six options which one way or another involve outside providers and the private sector, presumably so that the old-style council empires do not come back under cover of this legislation. If the market place is so important, and it is referred to in all the options, why are the Government trying to give the impression that the need to go to the market place is being removed? Who are they trying to convince? Whose fears are they trying to allay?

I refer to Clause 15. If the Secretary of State's powers need to include the power to amend enactments in this way, and if the Government are so uncertain as to the changes needed to other legislation to ensure that the Bill works properly, then the Bill should not have been brought forward at this time. It would be helpful if the Minister could indicate, in the light of the pilot schemes that have been run, where he anticipates problems arising and where it may be necessary to use those sweeping powers to amend existing legislation to ensure that this piece of legislation works.

I turn briefly to the capping proposals contained in the Bill which are alleged to spell the end of crude and universal capping. As the White Paper goes on to say:

    "In particular, the Government will not in advance tell every single council in the country how much it may spend". The powers appear to relate to all local authorities, so to that extent they remain universal, and the Secretary of State will decide after the budgets have been set whether or not the budget requirement is excessive. It seems to me that that is very close to the Secretary of State deciding on the acceptable level of the budget for all authorities. Since in deciding whether or not the budget is "excessive", the Secretary of State must have regard to the principles set out and in accordance with the provisions of the 14 pages of the first schedule, I hope we are not playing with words about whether those powers continue to be universal or reserve. In winding up, perhaps the Minister will explain to the House the principles which are involved, how they work, why they are not universal, and why they are only reserve.

8.40 p.m.

Baroness Maddock: My Lords, I shall not be quite as generous as my noble friend Lady Hamwee in welcoming this Bill or, indeed, in forgetting history. I find that a little difficult.

It seems to me that the Labour Government are rather confused about how they see the role of local government. On the one hand, they have talked about revitalising local government, renewing local democracy, giving local government back to communities and encouraging local people to become

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involved in setting standards for their local services. But on the other hand, they appear to undermine completely many of those laudable aims by pretending--we have heard this from several noble Lords this evening--that they are doing away with capping and showing what many of us believe is a rather unhealthy tendency towards legislation which is centralising and which gives Whitehall far too much say in the running of local councils throughout the country.

Reading through the debates on this Bill in another place, it seems clear to me also that the Conservatives are also rather confused about the role of local government in our democracy. It may be that their interests in and conversion as regards the importance of local government in our democratic hierarchy is perhaps due to having found out the hard way. For 18 years, they denigrated local government, partly because they tended to judge all local councils by the standards of the worst, and they heaped on local government restriction after restriction which took away from local councils many local decision-making powers.

The poll tax set local residents against their local councils. I still remember setting the first poll tax and people jumping down from the gallery and barricading themselves in the council chamber.

As a result many of their own Conservative councillors became extremely dispirited and the Conservatives lost more and more of their elected local councillors. But it appears that, lo and behold, some of them have seen the light. I wonder for quite how long. In fact, so changed are the views of both Labour and the Conservatives on local government, that I sometimes wonder whether I did not dream my years in local government, years when Labour railed against central control and capping and when the Conservatives equally strongly proposed such measures. I hope that your Lordships will forgive my long introduction, but I find it rather difficult to forget history. I certainly have not changed my views and vision of the importance of local democracy in ensuring that we have a healthy national democracy.

I still believe that local government must serve local people; that local people have a right to be consulted and involved in the decisions made for them by their local authorities; and that decisions should be taken as closely as possible to the people whom they affect. I believe that national involvement should take place only when it is necessary; for example, in enabling a fairer distribution of resources. My noble friend Lady Hamwee referred to that. Indeed, in his opening remarks, the Minister attempted to refer to that and, as my noble friend Lady Hamwee said, we have something of a disagreement with him on that issue.

I turn now to two issues which are covered specifically by the Bill: first, best value and how it relates to the provision of housing services; and, secondly, capping. Best value is intended to increase the efficiency of public services by giving service users the opportunity to be involved in the planning, delivery and monitoring of the services concerned. In housing, the service users will be tenants, leaseholders and users of housing advice. They are the people who should be

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involved centrally in the quality programme. Unless they are, there will be no true test of whether best value is being achieved by our housing authorities.

For many of us, the worry is that the Government will be rather too prescriptive in the regulations and guidelines which they issue. I believe that, if they are, innovation in the way that local authorities procure services will be seriously limited. In his introduction, the Minister claimed that the legislation provides a framework. It is important that the legislation provides an enabling framework because that will allow experience on the ground by pilot authorities and others to shape the detailed good practice and information which can then be disseminated around the country, particularly from the Department of the Environment, Transport and the Regions.

But the terms of the legislation convey to me, and possibly to others, that cracking down on councils which fail is rather more important than rewarding good practice. If one is too condemnatory, councils may feel inhibited, for example, about reporting failures and difficulties as well as successes. That is important. I hope that the Government will take note of that in their regulations and guidance.

The Bill provides a description of best value. It emphasises economy, efficiency and effectiveness. However, it does not mention some of the other responsibilities which local authorities have, in particular under other legislation. My colleagues on these Benches and I are concerned in particular about environmental issues. I am concerned especially about other responsibilities which local authorities have under legislation; for example, under the Home Energy Conservation Act in relation to energy efficiency in homes. That affects housing and is an important part of what councils should be looking at when they are looking at providing good services for their tenants.

I know that this Bill is aimed primarily at local government but I want to raise one important issue on which I hope that the Minister can help me in relation to housing associations. As has been said by other noble Lords, many authorities have for many years been looking at ways of providing good housing services and involving their tenants in that choice.

One such authority is Mendip. It happens to be a Liberal Democrat-controlled council. It consulted its tenants as to whether they wanted to opt for a stock transfer. The tenants voted against that but they were happy for the management to be run by a housing association. That was carried out through a tendering process. I declare an interest in that regard because the housing association in question is Western Challenge, of which I am a board member.

It seems very sensible for housing associations to be partners with local authorities in providing best value. However, I understand that the consultation document from the Housing Corporation, which was published recently, which concerns what are the core activities of housing associations does not seem to include housing management as one of those core activities. I hope that the Minister will throw some light on that because it

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seems to me that housing associations are essential partners in providing best value and in helping local authorities to provide good housing services.

I turn now to capping. This Local Government Bill contains clauses which deal with matters which may arise between billing and charging authorities as a result of new capping legislation. To my mind, the Government have been less than honest on that issue. They loudly trumpeted the fact that they promised to get rid of capping but in this legislation we find in its place a system which seems to be very like that which the Conservatives brought in when they were considering giving back to local authorities the resources that they had spent on housing benefit. It is a system which will cap local authority spending because the Government have said that they will not cover the full cost of the council tax benefit that local authorities pay out--we do not know what the level is--if they believe that the council tax levels are higher than they think reasonable. As other noble Lords have said, they do not spell that out clearly.

Local council tax payers will probably end up subsidising national benefits. We believe that that is not acceptable. It is just the same as happens with regard to housing benefit where council tenants subsidise poorer council tenants. Once again, it seems to me that we are seeing the Government do the very same things that they bitterly opposed when in opposition. Why is it that the Government cannot trust the electorate? By all means help local authorities to deliver good value, to show electors that they are getting good value, and to find better ways of involving local people in those decisions, but, at the end of the day, I believe (as I think we all do on these Benches) that it is the people who decide whether that is right, through the ballot box with a fair voting system.

I regret to say that I feel that this Bill is a missed opportunity. I believe that the Government are a little muddled in some of their objectives and particularly deceptive in the way they talk to us about removing universal capping.

I feel once again--and not just with this Government--that governments are putting their trust more in central government than in local people and local councils. Once again, I regret that we have a government who appear to legislate by always judging the worst councils and not the best. I hope that we can improve the Bill as it passes through the House and that we can build not on what is worst in local councils but on what is best, and go forth and celebrate local government in this country. When I look back or when I visit the northern part of the country and see some of the wonderful municipal buildings, I remember that once we were a country which was proud of its local government. I hope that we can reach that stage again one day.

8.52 p.m.

Lord Hanningfield: My Lords, I begin by declaring an interest which has considerable bearing on my views on the Bill. I am the leader of Essex County Council, the largest county council in the country. I am also

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Conservative leader at the LGA. I support my noble friend Lord Dixon-Smith in giving a cautious welcome to the Bill.

I should also like to agree with much of what was said by the noble Baroness, Lady Maddock, particularly in her closing remarks. I cannot agree with many of her earlier comments about the Conservative Party. She obviously has not been listening to my right honourable friend the Leader of the Opposition recently when he said that the Conservative Party spent too much time reorganising local government rather than supporting it. He has gone down on record as saying that at the LGA conference and in many other places.

As I have said, I have been in local government for a long time, over 25 years. In that time I have not seen a local government Bill quite like this. It is so much a Bill which is concerned with new powers for central government that I was surprised to find the words "local government" even in the title.

The Bill is really about local government rather than for local government. As a council leader I can see that clearly. One of the key themes of the Bill is an increase in the centralisation of power. My honourable friend in another place, Bernard Jenkin, drew attention to 27 new powers which will be conferred upon the Secretary of State. I believe that is outdoing even any Conservative Secretary of State. I am concerned about the enormous increase in central government control over local authorities. It is an increase in control which almost borders on the constitutional simply because the Bill would allow the Government so much control over local authorities' activities.

I hope that during the passage of the Bill through this House many of these questions will be answered. Certainly, some of the introductory remarks made by the Minister concerned me. I hope that they will be explained and clarified later.

The Conservative Party has realised that centralisation is not the right path to tread. We made mistakes in the level of control which we introduced and we are now changing our policies in accordance with this new position. Our country is made up of a wealth of diverse local communities, and the local authorities which serve these areas need freedom to reflect the needs of those diverse communities.

I read those parts of the Labour Party manifesto which were concerned with local government. On the face of it, it appeared as though the Labour Party, if elected, would bring forth legislation which would empower, enable and revitalise local authorities, giving them new freedoms and powers. The reality, as set out in the Bill, is that nothing could be further from the truth. The newly created RDAs, which are supposed to be devolutionary, are a joke. They are, as a government spokesman has admitted,

    "Government bodies, accountable to ministers".

I can assure noble Lords that I fought against centralisation by my government and I am going to fight doubly hard against the Labour Government's proposals which could take central control of our country to an unprecedented level.

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Clause after clause in the Bill takes decision-making away from local government and puts it in the hands of central government and Ministers. That is simply not acceptable. Why should a Minister in London, hundreds of miles from some part of the country he knows nothing about, take decisions which affect a particular road, house or field? We are a country which is relatively small but we have a high population and, in the interest of our democratic society, we should be trying to ensure increased local freedoms and not an increasing level of central control.

I welcome the fact that the Government are changing the name of the way in which services will be delivered by local authorities. "Best value" sounds like a much more friendly term than "compulsory competitive tendering". Although I support the name change, there are many other parts of the Bill about which I am concerned. I acknowledge that CCT was not welcomed by all parts of local government, but it made a wholesale change to the culture of local government and to the way in which services were delivered. The enabling type of local government which we have now is devolved from CCT.

The change was a measurable one. Local authorities could measure the improvements that they were making, and on average CCT delivered savings of around 7 per cent. across the range of services to which it applied. I am not convinced that best value will deliver that sort of measurable improvement.

The proposals in the Bill will set in place an inspection system, outlined very well by the noble Lord, Lord Bowness, which are more draconian than anything previously conceived of by any government. I have been looking at the cost of inspections. I gather that they might treble over the next three years. I believe that local authorities should be striving hard to achieve the very highest standards, but the growth of inspection which is proposed could be harmful. We are already spending tens of millions of pounds on inspection regimes. Social services inspectorate costs alone are nearly £50 million per year. We are seeing rising costs for the Audit Commission, OFSTED and so on. I am concerned about such costs. Soon, we shall be spending more on monitoring our services than on providing them. Is that what the Bill proposes?

I am also concerned that the Government will be able to intervene at the drop of a hat. I draw noble Lords' attention to the new Improvement and Development Agency, set up by the Local Government Association. I believe that if a local authority has a failing service, it should have an opportunity to rectify the problem itself or with assistance from another local government community rather than face a heavy-handed intervention by central government. That is exactly what the Improvement Development Agency will do. I hope that the Minister will comment on that.

I turn to the financial issues in the second half of the Bill. Labour's spin doctors were trumpeting the end of the capping regime. As most of my noble friends and colleagues have said here today, it is yet to be seen whether capping will end with this Bill. However, once

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the detail appeared and the smoke cleared, it was found that the "removal" of capping had been merely qualified.

I do not support, and have never supported, capping and I bring to the attention of this House the positive moves which my party has been making over the past months. We are looking closely at the financing of local authorities and endeavouring to find a solution which allows local authorities far greater financial freedom, as opposed to what the Government are seeking to do, which is to introduce a regime which will be more subjective and controlling than anything we have seen before.

As I said, I have never supported capping, but under the existing system we knew at least that the system was clear and straightforward. The new capping system will be shrouded in secrecy. The Bill threatens to introduce a system in which the Secretary of State will be able to cap any authorities he feels he wants to and on whatever grounds take his fancy at that particular time. What the Minister said at the beginning of this debate rather confirmed my fears on that and I should like more explanation as the debate continues.

I am also amazed at the suggestion in the Bill that the Government could cap authorities which spend below the standard spending assessment. As noble Lords know, the standard spending assessment is the Government's idea of what local authorities should spend. Therefore, to suggest capping authorities which spend below that is quite extraordinary.

As can be seen, I have considerable reservations about the Bill which I shall air over the coming weeks. Tip O'Neill, one-time Speaker of the House of Representatives, once said "all politics is local". When we read the Bill, we get rather a different impression.

9.1 p.m.

Lord Harris of Haringey: My Lords, I too should declare an interest. I am a London borough councillor and have been for more than 20 years. For more than half that time I have been leader of my local authority, a post that I shall be relinquishing next month.

I have seen some considerable changes in that period. There has been an erosion of local autonomy and in many ways a diminution of local democracy. For example, the previous government used the grant system not as a means of equalising the resource base and compensating for need, but as an increasingly punitive means of constraining expenditure and of rewarding political friends.

As many noble Lords will know, there is a system of standard spending assessments--indeed, the noble Lord, Lord Hanningfield, referred to it. That was supposed to be an objective and fair way of calculating the distribution of resources. In practice, the system was and at least for the time being remains extremely complicated. The formula had to take on board the many differences in local areas and of course the multiplicity of local services. It was and is broken down into a huge number of different elements, each with its own separate calculation.

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To illustrate this I want to give one example and show how this worked with the figures used in the 1997 settlement--the last made by the previous administration. Most of the grant funding is population related, thus the main district services SSA calculates standard spending on the basis of the needs-related cost of services per head of population. Of course, we cannot simply use the number of people in an area; it has to be adjusted.

For my own borough of Haringey the calculation in 1997 was as follows. We started with the resident population of 213,344. We then subtracted one quarter of the net daytime outflow--5,300. We then added half the number of visitor nights--2,574--and one-sixth of the number of day-trippers--1,243. That left us with an adjusted population of 211,861. So for grant purposes Haringey lost 1,483 residents.

If we take another local authority--for the sake of comparison I will choose the one in which we reside at the moment, Westminster--the calculation followed the same pattern only somehow the figures ended up rather different. It started with 195,251 residents. It gained 103,700 from daytime inflow (your Lordships among others) plus 31,568 visitor nights and 20,996 day-trippers, which equalled a grand total of 351,515--a gain of 156,264 residents, or roughly the population of the borough of Kensington and Chelsea. For every 100 residents Haringey was deemed for grant purposes to have only 99, while Westminster was deemed to have 180.

But it did not end there. Obviously, the need to spend relates to other factors. Some of your Lordships might have thought that this would be where needy Haringey would have gained. Quite properly the SSA takes into account social and economic factors to decide how much per person (as adjusted) should be included in the grant calculation. The relative prevalence of each of those is assessed for each local authority and a cash value per head is then assigned to them. This of course is a neutral process and nothing could be fairer.

By the SSA formula, Westminster residents were assumed to be twice as needy as Haringey residents, and of course the number of Westminster residents was almost doubled by the calculation that I described. So your Lordships counted as much needier residents than the people who live in the area in which I have lived for a number of years.

It is therefore of enormous relief that the Government have removed some of the worst of those anomalies and announced a root and branch review of the whole system over the next couple of years or so. That review is critical for achieving fairness, not only within a conurbation such as London, but also across the country as a whole. In that review it will be essential that the old myth about the capital's streets being paved with gold is not given a modern incarnation. Let us not forget that 13 of the 20 most deprived local authority areas are in our capital city; that London's unemployment is almost exactly the same as Scotland and Wales combined; and that there are 26 London constituencies with levels of unemployment higher than any constituency in Scotland. Let us not forget that more

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than half the country's refugees and asylum seekers are in London being provided for by London local authorities; and that there are boroughs like my own where more than one-third of the children in our schools speak a language other than English at home.

It was also the previous government which introduced capping, first for rates in 1985 and subsequently of the poll tax and the council tax. Such arrangements weakened local democracy. By 1997 key elements of council budgets were being set by the then Department of the Environment and not by local decision and that demonstrates the myth that this Bill is about central control; it is about releasing local democracy.

And if local democracy means anything, it is about local people electing local representatives to determine local levels of service provision and local levels of taxation. That is the mechanism for local accountability and capping came between the local councillors and the people they represented.

This Bill proposes the repeal of existing capping powers, replaced by more discriminating reserve capping powers which will regulate increases in council tax from 1st April of next year. This is of course progress and I strongly welcome it. The new reserve powers will focus, as now, on increases in budget requirements.

The Bill is intended to give new powers for the Secretary of State to look at changes in budgets over a number of years; require reductions in budgets over a number of years; require reductions below those of the previous years; and allow exemption of certain categories of authorities. These arrangements provide the Secretary of State with considerable discretion and flexibility. I believe that it is important that, if reserve powers are to be retained, the key principles which are to govern their use should be spelled out as clearly as possible. Moreover, these new powers should be used as sparingly as possible. That is clearly what my noble friend the Minister indicated will be the case.

The Government also propose that local authorities are to become responsible for meeting part of the cost of council tax benefit subsidy from 1st April 1999. The regulations implementing the main scheme have already been passed, but some consequential new primary legislation is included in Clause 30 of the Bill. The clause is necessary to the scheme to provide for the transfer of payments between precepting authorities and billing authorities.

Local authorities remain opposed to the localisation of council tax benefit costs for the following reasons: first, the scheme will hit the poorest areas hardest; secondly, it should be the Government's responsibility to meet the cost of welfare benefits; thirdly, the public's understanding of council tax increases will be further diminished rather than enhanced; and, finally, the guideline increases could be seen by some as a direct substitute for crude and universal capping. It is my view that experience will demonstrate that this scheme is not satisfactory. I hope that the Government will review its first year of operation in some detail and in close consultation with the local authority associations.

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The provisions I have just commented on are, of course, taken from the second part of the Bill. The first part deals with the new duty of "best value", which replaces compulsory competitive tendering with a new obligation to secure the continuous improvement in services. There will not be many people in local government, with the possible exception of a few noble Lords who have spoken today, who will mourn the passing of CCT. It was an inflexible instrument which, while it may have driven costs down--usually at the expense of the wages of those providing the service concerned--did nothing to improve the quality of that service; indeed, the quality was often diminished as a result.

The new duty is in many ways a much more testing and rigorous requirement. It requires that authorities consult local people--the users of the service concerned--and other relevant interests. It will be necessary for councils to challenge the way in which they currently deliver services: no one model should automatically be favoured. It will be expected that local authorities compare the performance and cost of their services with similar authorities and demonstrate that they can compete effectively with alternatives.

As a result there will be a sort of "never ending journey" to seek continual improvements in the quality and efficiency of services. This has to be right for the users of the services and indeed for all those who have to pay for them.

The general duty of best value will require that authorities seek "efficiency, effectiveness and economy". This will be on the face of the Bill. Ministers in another place have promised that guidance will require authorities to link the implementation of best value with wider issues such as environmental sustainability and equity. I am disappointed that these do not appear on the face of the Bill, too. We already have the three Es of efficiency, effectiveness and economy, would it really be asking too much to make it five Es by adding environment and equity?

In particular, the fifth E, equity, acquires particular significance given the Macpherson report which your Lordships will be debating later this week and the importance of tackling institutional racism wherever it potentially occurs in the public sector.

I want to conclude by saying that this is an important Bill which demonstrates the priority given by this administration to reinvigorating local government. The objectives were set out clearly in the White Paper published last summer. However, this Bill is only part of the package set out in that White Paper. Another part is contained in the draft Local Government (Organisation and Standards) Bill published last month. That, too, is welcome. I am only disappointed that it was not possible for us to have all of the elements in one Bill in this Session, including the proposed new duty on local authorities to promote the economic, social and environmental well-being of their area. I look forward to the remaining parts of the White Paper prescription arriving before too long. In the meantime, I have much pleasure in supporting the thrust of the Bill today.

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9.12 p.m.

Baroness Miller of Chilthorne Domer: My Lords, I, too, must declare an interest as a councillor both of a district council and of a county council. Like many noble Lords who have spoken this evening, I had quite high hopes of the Government delivering some exciting things when they published their Modern Local Government: In Touch with the People paper. That contained some good general principles. It talked about strengthening local government and about better services. It also gave us hope that the Government would move on to encourage innovative local government, that we would be able to be much more attuned to local needs and wishes and that the electorate would feel very in touch with its council.

I remember more than once sharing a platform with the noble Lord, Lord Bassam, and having debates with him about how we would improve electoral turnout. I heard him say this evening that he does not think that tying local finance closely to local government is necessarily important. In fact, he said that it was not really important in improving electoral turnout. However, I believe that we thought it was at that time and that it is a crucial part of the process that people should actually feel that there is a point in turning out and voting for their local council.

I feel in many ways that the vision that was laid out in Modernising Local Government has metamorphosed into something--as my noble friend Lady Maddock said--that is rather more centralising and controlling, and that where at one time we read, "according to the wishes of local electors", we are now starting to read, "in accordance with the orders of the Secretary of State". This Bill could have gone a long way down the road of Modernising Local Government principles if we had had the word "guidance" frequently used instead of "order". That represents a great lack of trust still in local government.

Where has the general duty gone to promote economic, social and environmental well-being? I am pleased that the noble Lord, Lord Harris, did not fall into the temptation of being too easy on the Government over this. He mentioned that matter and his disappointment with regard to the matters of equality and sustainability. There are many examples of this Government mentioning the importance of sustainability. The Department of the Environment, Transport and the Regions has emphasised time and again the importance of sustainability. It is extraordinary that it can be left out of something as crucial as best value. I do not think we can achieve best value in cross-cutting services if we ignore sustainability as the absolute baseline for many of them. The noble Baroness, Lady Maddock, gave the example of home energy conservation. We could think of many other examples.

Best value really must be a matter of continuous improvement which needs to encourage innovation. This evening both my noble friends mentioned that authorities may be quite nervous of embarking on innovative measures against a background of constant measurement and inspection. That is absolutely true.

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The noble Baroness, Lady Hamwee, said that those who receive the services should do the imposing in this regard. We need to bear that in mind as we go through this Bill. What we have here is a tool for controlling local authorities' performance. Is there a threat here for the worst authorities? I quite agree that the worst authorities need substantial renovation. There is some incentive here for the best authorities, but the vast majority of authorities fall somewhere in the middle. I am not sure that this Bill as it is drafted at present does a great deal for the middle tranche of authorities.

I am sad, too, that parish and town councils have not been included in the consultation, because if best value is to apply to them we shall need a definition of those which fall into the de minimis category. But if the larger ones are to be included, they certainly should have been consulted over the best value proposals. As we go through the Bill we shall need to define those which will fall within and those which will fall without the definition of best value. I have experienced the agony of parish councils with regard to the audit system they now have to undergo. Although I understand that the bigger authorities will be hit by best value, it will certainly be a vastly different regime for them, much more so than for other authorities.

I believe this Bill has been written primarily with unitary authorities in mind. I noted the example given by the noble Lord, Lord Bassam--I am aware of others--of authorities that are working in partnership. However, I do not believe that this Bill as it is drafted at present, or the new draft Bill on political structures, give sufficient thought to all the two-tier areas of the country that still exist. It is far more difficult for a county working in partnership with a district to measure itself against performance indicators. I shall give an example of this to illustrate what I am talking about.

If we take the example of development control, for which the district council is responsible, it is a common indicator that 80 per cent. of decisions should be made in eight weeks. If one adds the matter of quality in areas of the country with villages with conservation areas where quality is of crucial importance, and those that are to receive large new tranches of housing, one begins to see that a district council by itself will have quite a task to work out where best value falls. Is it making decisions quickly? Is it the quality of design? If we were to include the sustainable development criteria, where would they arise? What about keeping costs down? Add to that the fact that one needs to work with the county council in the provision of services such as education and highways, and one starts to see that this is an equation that I do not think the Secretary of State can develop performance indicators for. I think this will be very much a case where local people will have to decide if their local authorities are working well in partnership together. I do not think the Bill adequately recognises those issues.

There is also the matter of the so-called hit squad, should it be necessary to call it in. From my reading of the Bill, it will not be subject to best value. I find that extraordinary. I do not understand how that can be the case. Indeed, one noble Lord mentioned that central government are not to be subject to best value either.

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I do not intend to refer at length to the comments of the noble Lord, Lord Bowness, on CCT. My noble friend Lady Maddock described CCT as a dream but I think that most of us remember it as a nightmare. I think that my noble friend was just being polite. The "cheapest is the best" philosophy ignored the waste of business time in preparing extremely complicated bids. To pretend that it was a great time for business is to ignore what was the reality. Furthermore, much time was spent by council staff in preparing watertight specifications because they were not able to consider anything other than the cheapest. That time was not particularly well spent. Preparing best value criteria will be time better spent. To that extent I feel positive about the Bill.

Clause 15 should be an enabling clause. It would be disappointing if we did not move further towards a power of general competence. I hope that beacon councils will be able to move closer to that. Beacon councils, which will be in the top group of well performing councils, will be in a win-win situation. They will probably get more money and they will have greater powers. But I am nervous that those authorities which are doing quite well but are still struggling against the odds will lose out.

I hope that this is not an overcentralising Bill. I am nervous abut the cost of inspections and how the inspections will be tied together to form a coherent whole. I have not seen an adequate explanation of how the various inspecting bodies, together with the performance indicators, will work.

The Bill is a small step on the road to greater local accountability and financial freedom but I do not think that the electorate will see it as anything more than that. In fact I think that it will almost pass them by unless we move much further along that road. Public opinion panels and focus groups do no more than take a snap-shot for the local population. Local people know when services are improving and they know when things are happening more according to their wishes. The quality of service is important. But that is a very subjective matter for many people and it is inappropriate in many circumstances for the Secretary of State to lay down what it should be. The national guidelines should only be guidelines. People are concerned with the price of services. If local councils are not seen to be in control of their finances the electorate will not be excited about the fact of having more power when it comes to electing their local councils. They will see it as electing the functionaries of central government.

The Bill is a small but welcome step, but there are many aspects of it which need to be better defined. I refer in particular to the criteria that are so frequently mentioned but are not specified.

9.23 p.m.

Baroness Seccombe: My Lords, with the exception of the noble Lord, Lord Hunt, I think that all noble Lords who have spoken in the debate have had experience as elected councillors. I was elected for one term, after which the electorate decided that I should

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disappear. But before I could fight the seat again, the authority had disappeared--I was on the West Midlands County Council. My experience during that four-year stint gave me great respect for local government and I always pay tribute to the councillors who spend many hours each week on behalf of their constituents. Many of them undertake to serve the community. Sometimes that is difficult, but they do it with such goodwill.

We have had a well-informed and detailed debate. It is important to remind ourselves of the salient facts that have run through all that has been said and to recall the diversity of the subject under discussion. The main items under discussion have been best value and capping.

First, all local authorities are different, as the noble Lord, Lord Hunt, said, and they have different needs. There are a number of categories of local authority, each category with a different group of functions. Within each category, each authority is different as a result of its own particular history and geography. Demography can have a dramatic effect on the character of a particular authority and the way in which it works. A seaside town may become a haven for retired people; a former coal or steel town may have lost its industry. Some will be fortunate and have diversified economies; some will benefit from their situation in relation to major communications infrastructure. Some may find that a fortunate location actually imposes specific problems that can become almost insurmountable in scale, such as the problems that might arise as a result of a sudden influx of illegal immigrants in a particular area. Any legislation that seeks to influence, improve and regulate the management of local government must of necessity be either very simple or very flexible, and preferably both.

The second point that must be borne in mind at all times is that the business of local government is to serve the public. If that task is to be carried out well and effectively, as well as economically, those involved need to be certain of the conditions under which they are working so that they can do their jobs without having to worry that they might be required to change the way in which they work too often.

Similarly, local authorities themselves need to know that they are operating under a consistent set of rules that also will not be changed too often. They need to have confidence so that they can plan ahead and know that the resources will be there when required. As the Bill is drafted, too much is left to chance. We must seek to provide clarity and certainty before it leaves this House. We know enough to realise that the declared intentions of the Government and the exact effects of what they are saying and doing can too easily be very different.

Implicit in the concept of best value authorities and best value planning as it is revealed in the Bill is the idea that everything that is done can be done better, and for less cost, and that the process of improvement is continuous. But anyone with experience of managing complex organisations knows that life is not like that. Improvements usually come in steps, and the steps rarely come at regular intervals. It is true that if the

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organisation is sufficiently large and complex, many small step improvements that take place across the organisation can create the impression of a steady process. However, while that might be said to apply to local government as a whole, at the individual authority level it is likely that the ride will be a bumpy one. It will be necessary for us to do what we can as the Bill progresses through this House to ensure that its effects, which will be felt at local authority level, do not cause too many bumps. As the noble Baroness, Lady Hamwee, said, best value should mean what is best locally.

Local government finance has been a strong source of contention for a very long time. Now, with around 80 per cent. of local authority funds coming from central government, it really is not surprising that the subject causes great concern to Parliament. The Government have said that they will do away with capping but will reserve powers. Let us not forget that reserve powers often become standard practice.

According to the Bill, it all depends on an opinion--the opinion of the Secretary of State. He will have enormous powers, as my noble friends Lord Dixon-Smith and Lord Hanningfield, pointed out so clearly. He may designate or nominate an authority according to a set of principles that he will decide, the only limit apparently being that the same principles will apply to all authorities in the same category. Designation gives the Secretary of State power to state the amount which he proposes should be the maximum for the authority's budget for the ensuing year. Nomination applies a rather less immediate sanction that limits future budget increases. Whatever the good intentions of the Secretary of State, the existence of this power will almost certainly put irresistible temptation in his way if the economy should slow down and council tax starts to rise rapidly as a result of the gearing effect that is the consequence of the dominating position of central funds in a local authority's budget.

Because demography and local circumstances change over time, and because the economy is dynamic and industry and commerce can move about depending on the economic pressures that they face, so the circumstances of individual local authorities can change. This in turn means that the distribution of funds from national government to local government must be adjusted regularly to take into account those changes and maintain a reasonable balance. Put the pressures imposed by those changes on top of restrictions on national funding because of a slowing national economy, consider electorates agitating because they can see their council tax rising at a rate well in excess of inflation as a result, and then ask what will happen. It is no answer to reply that we now have a government which are so in control of events that these circumstances will not arise. Look at Germany, supposedly the strongest economy in the European Community, and then try to suggest that we shall be immune from future problems. Unless some limits are put on the discretion which the Bill permits the Secretary of State, the fire will become very uncomfortable for all concerned.

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I cannot finish without endorsing the point so forcefully made by my noble friend Lord Bowness and asking the Minister whether he can tell us whether funds will be available through the rate support grant to fund all the increased costs that will fall on local authorities as a result of establishing best value systems.

This is an important Bill affecting millions of citizens. Good local services are vital for an acceptable quality of life. All noble Lords are anxious to achieve high standards. We on these Benches believe that financing of these services must be fair, accountable and transparent. In the later stages of the Bill we shall keep those simple principles before us. I am sure that we shall not disappoint the Minister. We shall be robust in our attempts to improve the Bill during the Committee and further stages.

9.33 p.m.

Lord Whitty: My Lords, I am glad to hear the noble Baroness's final remarks. It looks as though we shall have an extremely interesting Committee stage. I felt somewhat humbled by the experience of noble Lords who participated in the debate since my local government experience is even less than that of the noble Baroness. I did, however, spend a large number of years representing the much reviled council workers in a local government trade union, which gives me a slightly different perspective. Nevertheless, the points made in this debate have been well judged and are an important assessment of the impact of this Bill. Obviously I shall take into account all of them. No doubt we shall return to many of them at Committee stage.

There is one central point about the Bill that I must tackle head on. We are all agreed that we need a modernised local government system and a balance between local and central government. The fairly firm view was advanced by many noble Lords, particularly those on the Liberal Democrat Benches, but also elsewhere, that this was a centralising measure. It is not. The Bill is intended to give local government more scope to make its own decisions. It provides greater scope than the existing provisions and an incentive and pressure on local government to engage in innovation in the delivery of services. I accept that it also provides powers to central government. After all, as the noble Baroness has just said, 80 per cent. of local government expenditure is provided by the national taxpayer. The question is not whether national government retain those powers but what kinds of powers they retain and how they are to be exerted.

We are replacing powers introduced by several past governments, as the noble Lord, Lord Dixon-Smith, said. I believe that one particular past government have serious responsibility for most of this. Some of those powers might well have been sensible but some were far too restricted in both general finance and areas like CCT where algebraic formulae were applied with great rigidity. We are replacing that with the broader concept of best value. That concept requires local authorities to make their own decisions about the method of delivery and gives flexibility and scope for change.

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It is partly for those reasons that some of the matters which noble Lords wish to place on the face of the Bill cannot seriously be dealt with in that way. We wish to respond to experience and what happens on the ground. We shall address some of these issues in guidance, as the noble Lord, Lord Hunt of Tanworth, indicated. We do not wish to give the impression that we are producing a piece of legislation which results in greater rigidity than exists now. We wish to move dramatically in the opposite direction.

The noble Baroness, Lady Miller of Chilthorne Domer, indicated that she was not very excited about the Bill. I apologise for that. I believe that this Bill is quite an exciting concept and that many in local government realise that. Best value will put pressure on local authorities to change their methods of delivery and to innovate. It will enhance local accountability by requiring local authorities to engage in new forms of consultation with local people which will not simply be glorified focus groups, as the noble Baroness, Lady Hamwee, indicated. They will have a closer, ongoing relationship with their own communities in establishing the best way to deliver services.

There are therefore tremendous opportunities here for local authorities. They will be required to review fundamentally everything that they do and the manner in which they do it. As my noble friend Lord Bassam indicated, this has already begun not only in the pilot schemes but in other initiatives among local authorities, in particular by way of co-operation among them. The more innovative the means of delivery and greater involvement of the local community, the greater the interest that will develop in local government. I believe therefore that there may be a connection between the full delivery of a best value regime and, for example, turnout in local elections and general interest in the community in what local government is doing.

There is some concern that this is too much a framework Bill. However, it must be largely a framework Bill in order to accommodate the ability to move forward the process of change within local government. It needs to be able to accommodate the experiences not only of the pilot schemes but of future best practice and the way in which local authorities co-operate within their communities and among themselves. It also needs to be a framework in the sense that it must not inhibit these developments. That means some of the areas suggested for inclusion in the Bill are best dealt with in guidance. I include sustainable development--a matter raised by the noble Baroness, Lady Hamwee, my noble friend Lord Harris of Haringey and others--equity and social objectives. Much of that will be covered by guidance.

The noble Lord, Lord Hunt of Tanworth, asked whether the guidance will be available before Committee. We will do our best to indicate before Committee and in Committee the contents of the guidance on best value, but we will not be able to finalise that guidance because we will want to take full account of the on-going pilot schemes. The department issued interim guidance on preparing for best value on

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Friday. That is very much an interim circular to local authorities, but I will ensure that copies are made available to your Lordships.

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