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Lord Dixon-Smith: We have some sympathy with the principles enunciated in the amendments, even though we might not support them today. If one of the functional bodies happened to come up with a surplus--I presume that it is likely to be a small one--the fact would be well known and suitable adjustments would follow subsequently.

In the light of what happened when budgets were devolved to schools, I have some hesitation about manoeuvring. The noble Baroness, Lady Farrington of Ribbleton, will be all too familiar with the consequences of schools holding balances on their budgets, which could theoretically leave large sums of money prudently squirreled away by school governing bodies in the interests of some flexibility in future in the management of their schools. If local authorities had those locked-up funds available to them, perhaps they would be able to put them to better use than having them sit in a bank.

This is not a straightforward matter and I agree that we need to consider London's funding as a whole in the way that the amendment suggests. I am not sure, however, that the personnel structures that are established under the Bill would make that practicable and achievable. As the noble Baroness said, we need to consider the matter in the round and it is certainly a subject to which we will all be returning. At this stage, I note what has been said and look forward to hearing the Minister.

Baroness Farrington of Ribbleton: The amendments seek to allow for bodies to have negative budget requirements. Secondly, they would require functional bodies to pay any amounts calculated as negative budget requirements to the GLA.

Our main difficulty is that the amendments seek to change some key aspects of the local government finance regime for the GLA. While we have always been clear that there would need to be modifications to the standard system, we have been clear also that those would need to reflect its unique role.

The local government finance system does not provide for negative budget requirements for local authorities generally. It is not the intention to change that for the budget requirements of the functional bodies--as Amendments Nos. 212H and 212J seek to do. Local authorities whose income exceeds their expenditure do not have to give away their income to other bodies. Instead, they consider how best it can be used to improve the services they provide. The exception is legislation that has money being delegated to other bodies--as with schools, as the noble Lord, Lord Dixon-Smith, said. The same principle applies to the GLA and the functional bodies.

The noble Baroness and the noble Lord raised the point of why the budget requirement of a local authority would in theory take account of a negative budget generated by one or more of its service departments but

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the consolidated GLA budget would not. They are not comparing like with like. I have explained that the constituent bodies of the GLA are separate bodies with separate budget requirements. The GLA, following consultation with the functional bodies, would calculate a budget requirement for each functional body as the difference between that body's expenditure and income. The GLA then calculates the consolidated budget by adding together the budget requirements of each of the constituent bodies.

A London borough council, for example, has only one budget requirement. The education department and social services department do not calculate separate budget requirements under the applicable statutory provisions. A London borough council's budget is like a constituent body's component budget under the Bill.

I cannot envisage the circumstances in which the mayor would set a negative budget requirement for any of the functional bodies. That could theoretically happen only if the income of those bodies exceeded their expenditure. Ruling out negative budgets does not mean ruling out flexibility. The Bill provides a mechanism for any spare resources to be redistributed from one body to another. Clause 106 allows any of the bodies, with the mayor's consent, to pay revenue grant to another functional body. The mayor is firmly in the driving seat in setting the GLA budget. The budgetary practices that he or she establishes will be expressed in five component budgets. He or she will certainly take an overall view.

Clause 105 makes similar provision for grants for capital spending. That mechanism for ensuring that resources are used efficiently across the GLA and the functional bodies is much more appropriate than a rigid system of negative budget requirements.

For those reasons, the amendments are not acceptable. I ask the noble Baroness to withdraw them.

4 p.m.

Baroness Hamwee: The Minister referred to certain clauses, but the problem with them is that they require the mayor's consent which suggests that the mayor is not in a position to take control. However, before I respond any further, perhaps the noble Baroness can clarify one point for me. She explained that the financial provisions are to reflect the financial arrangements which apply to local authorities. The Minister's reply seemed to indicate--and perhaps she will confirm whether or not I am correct--that each of the functional bodies is the equivalent of a local authority. Looking at it as a whole, the model which the Bill sets out seems to me to read as if each functional body is an "arm" of the mayor, if I may stretch the physical analogy a little. In other words, it is the authority, comprising the mayor and the assembly, which is the equivalent of a local authority. However, the Minister seemed to be telling us that each functional body is a separate local authority for this purpose.

Perhaps I may expand on my argument--that is, if it needs expansion. The Minister talked about borough budgets. In a London borough, I accept that it is the council as a whole which would take a view as to

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the comparative priorities, to use her examples, of education and social services. That is precisely the sort of model we would like to see here, with the authority in the position of the council. The Minister said that boroughs have to act under their statutory provisions. We are at present discussing what statutory provisions will apply to the authority, so I think that that may be begging the question.

Baroness Farrington of Ribbleton: The noble Baroness has identified the difference. The difference between us is the fact that she would prefer a different model from that proposed in the Bill.

Baroness Hamwee: Yes, I would; I have made no secret of that fact. But that was not my question. I do not think we shall progress a great deal further on the matter today. Nevertheless, it is a matter of some importance. Perhaps the Minister has something further to say before I withdraw my amendment.

Baroness Farrington of Ribbleton: It may help the noble Baroness to know that, as I said earlier, the mayor decides the budget requirements but each functional body has its own budget. They are added together to form a consolidated budget requirement. I do not know whether that assists the noble Baroness.

Baroness Hamwee: I am grateful to the Minister but, sadly, I do not think it does. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 212J not moved.]

Lord Dixon-Smith moved Amendment No. 213:

Page 38, line 11, at end insert--
("(10) Notwithstanding any other provisions of this Act, the precept issued by the Authority for any financial year ("the relevant financial year") subsequent to the first financial year for which the Authority issued a precept shall not exceed the precept issued in the financial year preceding the relevant financial year by a percentage greater than the percentage by which the Retail Price Index increased in the year to the 31st December preceding the relevant financial year, except where this can be shown to be the consequence of a reduction in funding from central government.").

The noble Lord said: The Government have said that the GLA should not represent an oppressive financial burden on Londoners. Paragraph 6.7 of the White Paper on London promised that the finances of the GLA would,

    "meet the Government's objectives of efficiency and value for money in public spending". However, on the face of the Bill, the fulfilment of those pledges appears to be left to chance.

Experience elsewhere of powerful precepting authorities shows that, all too easily, they can escape the electoral consequences of their decisions because council tax payers fail to understand that their increased tax bill very often results from a decision by a precepting authority rather than a decision by a billing authority. This happens despite all the information that is sent out with tax bills. Indeed, experience in London

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during the time of the GLC also bore out that fact. I cannot believe that people in London would wish to return to such a situation.

There is another factor involved, which is mentioned in the amendment; namely, government finance. All too often, for a local authority setting its budget the greatest variable that it faces in its financial resources is the variation in the funding it receives from central government. At present, we are in a period of relative stability because the Government have said--I am grateful to them--they will not amend the relevant distribution formula for a period of three years. But that period of peace, quiet and correctness is, I suspect, likely to be followed by a more violent period of change as the formula is altered to catch up with the demographic shift that has taken place over a longer period of time. The blame for local tax increases must rest where the responsibility for it lies. Among other things this amendment seeks to help to bring that situation into being.

As far as I can see, there is no financial discipline in terms of Part III of the Bill as it stands, except the Secretary of State's powers of direction. This is a new type of authority and the dangers of irresponsible financial planning should be diminished, if not eliminated, in the drafting of the Bill. The Government's stated intention is that the authority should be financially responsible. If that is to be more than a pious hope, limiting the increase in its precept for each financial year to the percentage increase in the RPI to the previous December is not only desirable but perhaps also an indispensable protection for the people of London.

The proposal is a moderate one; but it also has to be said that it is not novel. We are suggesting that the precept should not outstrip inflation; that is to say, it should not rise more quickly than the RPI. We see many examples of this in practice. The Government expect the privatised utilities to abide by much more stringent price cuts. They operate in the private sector but because they provide a public service and are all too often in a monopoly situation it is deemed that these requirements are reasonable. They are often required to operate on RPI minus--in other words, their prices can increase at below the rate of inflation--and they are expected to maintain their profitability through increases in efficiency, and so on.

When we had a Conservative government and the idea of RPI minus as a formula was produced for the regulation of these utilities, the Labour Party said that it was not a sufficiently stringent discipline. I find myself asking this question: how, in reality, is the GLA different from the privatised utilities? Of course, the same could be said of all government services; indeed, we are to some degree involved in a philosophical debate at this point. However, the GLA is certainly a monopoly provider for many of its services. It is certainly in a monopoly situation.

The Government claim that the RPI minus formula is needed to encourage privatised utilities. So why should not the same argument be applied to the GLA? Limiting its price rises to the retail prices index would

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encourage efficiency in London's public spending, which is exactly what the White Paper set out to do. Some people may say that local government is different; it provides services. But the privatised utilities are services. There is a parallel, if not a complete congruence, between the two.

The situation in London is exacerbated by a trend which is apparent at the moment of the Government tending to move resources from London and the south-east of the country into the west, the Midlands, the north-east and the north-west. We see that through the changes in the revenue support grant and the temptation for even wider changes than we have had so far. It must be borne in mind that London is already a huge net contributor to the nation's finances. If we are in the business of removing resources from the south-east, and from London in particular, we need to bear in mind that many parts of London are as disadvantaged as disadvantaged areas anywhere else in the country. Simply to use this resource shift to justify a different political need is not appropriate.

In a sense this amendment is exploratory. It explores the Government's attitude and philosophy on matters financial. I look forward to the Minister explaining how he sees the future of government services and government costs. Are they to be related to the normal cost increases which we have seen? If we had a period of deflation, would they still maintain that kind of relationship; or are we to expect that they might rise and expand--perhaps gently--in a way which absorbs an ever-increasing part of the community's total finances and resources? If that were to happen, I believe that it would be damaging.

This amendment seeks to impose a proper discipline on the Greater London Authority. It would, of course, render totally redundant the possibility of capping under the Local Government Bill because, were the Greater London Authority to be subject to this kind of a discipline, it seems to me that it would not fall foul of the Secretary of State at any time. I beg to move.

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