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Lord Addington: My Lords, bearing in mind that the noble Lord's responsibilities and powers in this area are somewhat limited, will he give an undertaking to use all his influence to make sure that Westminster is the most disabled user-friendly of all the stations on the system--accepting, of course, the fact that it does not make a great deal of difference if people can get on a train at Westminster but cannot get off anywhere else?

The Chairman of Committees: My Lords, I must give the preliminary answer that I gave a moment ago to the noble Baroness. However, I feel sure that the noble Lord's comment will be noted and taken into account.

Lord Cockfield: My Lords, while I agree that it is better to travel hopefully than to arrive, is there any chance that the Jubilee Line will be running properly by the Summer Recess?

The Chairman of Committees: My Lords, I say this with some happiness, although not in the sense of being able to assist the noble Lord too much, that his question falls outside my terms of reference.

Council Tax Increases

3.23 p.m.

Lord Roberts of Conwy asked Her Majesty's Government:

The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty): My Lords, the Government did not predict council tax increases in 2000-01 for England; nor did we announce any capping criteria in advance. Councils made up their own minds on their budgets, taking account of local circumstances and the views of local people.

I understand that in Wales the National Assembly for Wales has its own arrangements, which are of course a matter for the Assembly itself.

Lord Roberts of Conwy: My Lords, is it not a fact that the level of council tax in England has risen by about twice the rate of inflation and in Wales by three times the rate of inflation? Is that not an inflationary pressure in itself, as well as a further burden on taxpayers who can ill afford to pay? Is not all this due to the parsimony of the Government as regards rate support grant?

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Lord Whitty: No, my Lords, it is not due to the parsimony of this Government. This Government have given an additional £6 billion through the support system to local authorities. That is an increase of 7.8 per cent over the past three years, compared with a cut in the last three years of the previous administration of 4.3 per cent. So there was some ground to make up, and it has been made up by both central government grant and increases in council tax. The figures to which the noble Lord refers are not exactly correct. The average increase in England is about 6.2 per cent per dwelling, 6.1 per cent for Band D, and in Wales 11.3 per cent for Band D.

Baroness Whitaker: My Lords, is my noble friend aware that the increase in council tax for the London Borough of Camden is far less than the rate of inflation, having risen from £149 a month to £151 a month? I regret that I cannot give the exact percentage, but it is much less than 6.2 per cent.

Lord Whitty: My Lords, I could give the noble Baroness the exact percentage increase if I could read the small print. I am aware of the general increase in the London Borough of Camden, which indicates a degree of good housekeeping in that Labour-controlled borough. Different local authorities face different circumstances and different demands on their resources. The local government finance system needs to reflect that, including the ability of local authorities to make their own judgments as to the level of council tax.

Lord Dixon-Smith: My Lords, it has long been the case that at this time of year there is a ritual gavotte: local authorities plead their case one way and the Government consistently plead their case the other way. I should like to return to my noble friend's original Question. It seems that while it is true to say that the Welsh Assembly has an influence on, and indeed is responsible for, what happens in Wales, the interests of this House cover the whole of the United Kingdom. Therefore, it seems proper to ask the Minister whether he can explain what appears to be an extraordinary discrepancy between the general result in England and that in Wales.

Lord Whitty: My Lords, this House, of course, has an interest in what happens throughout the United Kingdom and frequently throughout the rest of the world. However, I respond for the United Kingdom Government, not for the National Assembly for Wales. I feel that there is sometimes a conceptual difficulty among certain noble Lords--among whom I am slightly surprised to include the noble Lord, Lord Dixon-Smith--in regard to the consequences of devolution. It means that the Welsh Assembly and Welsh councils make their own decisions on devolved matters. It is not for the national Government to reply for them on those matters.

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Baroness Hamwee: My Lords, does the Minister agree that the greater the central control on funding at local level, the greater is the danger to local democracy? If so, does he further agree that the recent announcements of funding for schools going direct to schools from the centre, however welcome the cash, is another symptom of central government control, which does not properly allow for local judgment?

Lord Whitty; My Lords, I do not entirely agree with either proposition. Clearly, a balance needs to be struck between the amount of local government expenditure which is financed by central government and that which is raised locally. We believe that we are moving towards a sensible balance. We are reviewing the whole system of local government finance, and that is a fairly lengthy process. In the meantime, we allow local authorities a degree of stability by setting local government grants at a level for a period of three years. As to the additional money for education, which I am sure the noble Baroness and the whole House welcome, some will go direct and some will go via local authorities. The allocation will depend on the form of the education expenditure for which local authorities and schools can bid. This in no sense undermines the position of local education authorities; rather, it is a way of getting the money to the right place in the most effective way.

Earl Russell: My Lords, the Minister said in his first reply that the Government had provided an additional £6 billion. Can the noble Lord tell the House to what it is additional?

Lord Whitty: My Lords, the increase is 7.8 per cent. Those noble Lords who have quicker mathematical minds than mine will be able to work out the approximate level in the previous three years. In view of the noble Earl's ancestry, no doubt he has already worked it out. I do not share the noble Earl's ability.

Limited Liability Partnerships Bill [H.L.]

3.31 p.m.

Read a third time.

Clause 4 [Members]:

Lord Goodhart moved Amendment No. 1:


    Page 3, line 7, at end insert--


("( ) A person shall cease to be a member of a limited liability partnership on--
(a) death;
(b) commencement of winding up;
(c) becoming bankrupt or having his estate sequestrated; or
(d) granting a trust deed for the benefit of his creditors.").

The noble Lord said: My Lords, we apologise for moving amendments to deal with technical issues at this late stage, in particular because we warmly welcome the Bill in principle. I say that without fear of dissent because my noble friend Lord Phillips of Sudbury is not here. The reason why these amendments are tabled today is that it was only during

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the debate at Report stage that I became aware of a serious lacuna in the Bill which I had not previously noticed. The lacuna is that the Bill makes no provision for what happens to the property rights of a member of a limited liability partnership who ceases to be a member.

In most cases, what happens on the death or retirement of a member is covered by an agreement between the members. Obviously, that is so in the case of large professional partnerships, such as KPMG or Clifford Chance, but the Government see LLPs as a vehicle not only for professional partnerships but also small businesses. Not all small businesses will obtain proper advice before incorporation; and there will be some agreements to set up LLPs which fail to make proper rules to cover the rights of outgoing members. The Bill, or regulations made under it, needs to make proper default provision in those cases where the agreement fails to provide an answer; otherwise, the matter will have to go to court. The court will have the impossible task of deciding how to allocate LLP property without any guidance.

Take the simple situation in which three people form an LLP to run a restaurant and agree to split the profits equally. One of them dies and ceases to be a member, or becomes incapacitated and wants to retire, or simply gets fed up with the business and wants to get out of it. Meanwhile, the restaurant has been successful and is worth a considerable amount of money. Under the present law the restaurant business could be carried on by a limited company incorporated under the Companies Act 1985 or by a partnership. Each of them contains default provisions for what happens when somebody ceases to work for the company, but those provisions are very different. If a small business like this is carried on by a company the outgoing director is likely to have share capital. If there is a market for the shares the outgoing member can sell them; if not, he or she is locked in. If the company pays a dividend the former director, or his executors, will receive a dividend on those shares.

Normally, however, one cannot recover the capital unless and until the company is wound up, which is an indefinite time in the future. There is an exception. If the business is carried on in a way which is unfairly prejudicial to a member he can apply to the court for a remedy under Section 459 of the Companies Act 1985. The usual remedy is a court-ordered buy-out. But applications under Section 459 are notoriously long and expensive. If the business is run as a partnership the death or retirement of one partner dissolves the partnership, in the absence of any agreement to the contrary, and the outgoing partner gets his or her share of the partnership property immediately. If the LLP adopted the partnership system it could not do so completely because the property of the LLP would belong to the LLP, not the individual members jointly.

I accept that it would not be right to wind up the LLP if one member left, but it would be possible to require the LLP to buy out the outgoing member's share of the capital. However, that has drawbacks.

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First, it might put the LLP into financial difficulties which could be serious or even fatal. Secondly, no doubt there would be difficulty in deciding on the valuation of the buy-out, especially if the business had valuable goodwill which might or might not be affected by the death or retirement of the outgoing partner.

But the use of the company precedent also has drawbacks. The lock-in of capital is unfair to the outgoing member and, over the long term, creates an acrimonious relationship between the outgoing member and the continuing members and also conflicts of interest. As LLPs have no share capital there is no possibility of a dividend. It appears that the continuing members would simply be entitled to split the profits between themselves. It might be possible to provide by regulation that Section 459 applies where the continuing members refused to pay for the use of the former member's capital. I understand that currently the DTI is consulting on the application of Section 459 to LLPs. I suppose that there is a third possibility; namely, that the only people interested in the net assets of LLPs are the current members and, therefore, in the absence of agreement on a buy-out, the outgoing member has no claim at all. I believe that that result would be wholly unacceptable.

It is essential that the Bill, or regulations made under it, should choose either the company or partnership model. As between them, I strongly prefer the latter. I do so, at least in part, because I believe that that is what people would expect. Let us return to the three person restaurant. Get the three of them together at the time they set up the business and ask what should happen if one of them dies, has a row with the other two and wants to leave or simply becomes unfit to carry on. Most people would say that in that case the outgoing member, or his executors, should get back his share of the LLP's assets. They might well go on to say that the continuing members of the LLP should have a reasonable time to arrange a buy-out. Frankly, I do not believe that many people engaged in setting up an LLP would deliberately opt for a long-term lock-in. The Government might, nevertheless, prefer the company model, but they would be wrong to do so. I believe that an even worse outcome would be to have no rule at all. How on earth could a court decide on the rights of a former member in the absence of some guidance provided by statute or regulations?

I do not claim that the amendments which I have tabled can simply be accepted as they stand. I have been persuaded in discussions with the Minister that the bankruptcy of a member should not lead to his automatically ceasing to be a member. We should like the Government to accept that there is a need to include a default provision to cover the property rights of a former member, to consider what those rights should be and to introduce the necessary amendments when the Bill goes to another place. I beg to move.

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