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Baroness Hanham moved Amendment No. 2:

The noble Baroness said: In speaking to Amendment No. 2, I am also speaking to Amendments Nos. 23 and 69. They all more or less follow the same line. As the noble Baroness, Lady Hamwee, said, we welcome the possibility of greater freedom and flexibility. I am bound to say, having read the Bill clause by clause, that I am not quite sure where that freedom and flexibility will come from. However, we may manage to unpick it as we go.

Amendment No. 2 would replace the Secretary of State's ability to specify an individual local authority's borrowing limit by direction with a requirement to do that by order, thereby making any borrowing limit decided by the Secretary of State subject to parliamentary scrutiny.

We believe that it is reasonable to expect this sort of examination. After all, the additional powers this provision brings the Secretary of State go against the general principle of giving more freedom to local councils. We understand that if the Government were expecting to specify a number of individual limits, the process could become cumbersome and impractical. But since this is a reserve power only—it is suggested that it is used in exceptional circumstances, if something has gone wrong at a local authority—we believe that such an exception is so important that the Secretary of State should spell out his reasons justifying limiting a council's borrowing, and he must do that before Parliament.

Amendment No. 23 continues this theme. It is to find out what is meant in page 3, line 4, by "direction". It is mentioned a lot in the Bill, and it would be helpful, at this early stage, if the Minister could identify what is meant by "direction". Or are we misreading this? Is

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it intended that a direction would be laid before Parliament like regulations, or is it just a diktat to the local council in question?

Amendment No. 69 is, we believe, of fundamental importance. Chapter 1 deals with capital finance, making provision for borrowing credit arrangements, the use of capital receipts, investments and accounting practices to be followed by local authorities. It introduces a considerable number of changes to the current system, several of which involve directions from the Secretary of State.

If the Secretary of State is able to direct a local authority in these matters, it would appear to be a considerable usurpation of local authority power, bearing in mind that the Bill is meant to be about freedom and flexibility. We believe that local authorities know better than central Government how to manage their own financial arrangements. We are therefore not comfortable with these new powers and believe that it would be preferable for all directions made under this chapter, and in others that we shall come to later, to be in the form of regulation and therefore subject to parliamentary scrutiny. I beg to move.

Baroness Hamwee: We share the noble Baroness's concern. It is sad, so early in the Bill, that what is given with one hand is subject to being taken away with the other. Clarity about how that taking away might happen would at least leave us knowing what the procedure would be and give us a little more certainty.

Lord Rooker: I will do my best to answer. I am reminded of the comments of the noble Baroness, Lady Hamwee, on the last group of amendments, that she wanted to be political. I know it is unfair, but could she announce when she is being political, so that we know? We always have trouble with the Liberal Democrats in this respect.

Baroness Hamwee: For my own self-respect, I have to say that I am always political.

Lord Rooker: We have already had one major announcement of a change of policy from the noble Baroness, Lady Hanham, about letting local authorities do anything they want and keeping the big hand of Government off them. That is certainly a major change from what I experienced in 18 years of opposition in another place. Anyway, I digress and am falling foul of my cardinal rule—I will stick to replying to the amendments.

Amendment No. 2 relates to Clause 2(2). It is not a question of giving powers with one hand and taking them away with the other, and I hope to be able to explain that. This is a power under which the Secretary of State could allow an individual authority to breach its national borrowing limit. The national limit would be intended to apply to all authorities, but we could occasionally need to offer emergency assistance to an individual authority. We can do something like this

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under the present system by issuing a supplementary credit approval to an individual authority, thereby allowing it to undertake extra borrowing.

Only in the most exceptional circumstances would it be right to allow an individual authority to breach its national limit. The criteria would be similar to those we apply at present before issuing supplementary credit approvals. We would need to be satisfied, for example, that the authority's difficulties were such as to threaten the delivery of essential services. And any extra borrowing capacity we allowed would still have to be within the authority's own local prudential limit, since the Bill gives us no power to allow a breach of that limit set under Clause 3(1).

Clause 2(2) would allow us to exercise this power by issuing a direction—in other words, by sending a letter to the authority, which is what we do when we issue a supplementary credit approval under the present rules. That would allow us to respond quickly to a case of real need. We could also easily attach any necessary conditions to the direction and tailor these to the precise circumstances of the case. However, the amendment would require us to lay an order before Parliament instead. That procedure would be much less flexible and could involve quite unacceptable delays. It is not an appropriate means of dealing, in a sensitive way, with a particular authority's emergency needs.

Amendment No. 23 would retain Clause 4(2), under which a local borrowing limit could be set, but require the power to be exercised by regulations rather than by direction. The use of directions is a simple administrative procedure which allows a quick and sensitive response to local circumstances. Making regulations, which would normally take many weeks, is less flexible.

In response to concerns expressed by local government, we have made it clear on the face of the Bill that this power may be used only to stop an authority borrowing more than it can afford. But if the power needed to be exercised against an authority deliberately flouting the prudential code, rapid action could be important. The amendment would therefore lead to delay in a situation where action might need to carried out in days.

The power in Clause 4(2) was among those considered by the Delegated Powers and Regulatory Reform Committee. In its 16th Report, of 2nd April, the Committee reported on this Bill and did not recommend any change in relation to this provision.

Amendment No. 69 covers some of the same ground. It relates to Clause 20, which deals with all the powers in Part 1 of the Bill to issue directions. The amendment would prevent the use of that flexible procedure and require regulations to be made instead.

There are three powers of direction in Part 1. The first is the power in Clause 2(2) to waive the national borrowing limit, which I have just discussed in relation to Amendment No. 2. Secondly, under Clause 4(2), the Secretary of State could impose a local borrowing limit on an authority by direction. Finally, under Clause

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16(2)(b), a direction could be used to allow items of an authority's revenue expenditure to be treated as capital expenditure.

These powers are essential to the Bill. As I have explained, they enable action to be taken quickly and sensitively in particular cases. However, the amendment would, in effect, remove that option and require regulations to be made instead. As I said, that could lead to quite unacceptable delays and reduce the flexibility for the Government and local authorities.

Several precedents have been set for the use of directions in the present capital finance system introduced in 1990 by the previous administration. I hope that, with these assurances which I hope are those sought by the noble Baroness, she will withdraw her amendment.

4 p.m.

Baroness Hanham: I thank the Minister for that explanation. While none of us seeks to be political at this early stage in our proceedings, I too have been a leader of a council and I know what government interference, of whichever complexion, can do. From that neutral point, perhaps I may take the opportunity to declare my interest as a current member of a local authority. Perhaps that will cover it for the duration of the Committee stage and I shall not need to bore everyone by repeating it.

If I am correct in my interpretation, the Minister has explained that this would be used only in an emergency and that direction would have to be introduced because of that emergency situation. I further understand that it would be introduced because a local authority had either overextended itself or was in danger of doing so. The Minister is nodding his head to say that that is correct.

I shall read with care the Minister's comments on the amendment, and for the moment I shall withdraw it. While I do not promise not to return to the matter, I believe that his remarks have given us the necessary clarification.

Amendment, by leave, withdrawn.

Baroness Hanham moved Amendment No. 3:

    Page 2, line 1, leave out ", without the consent of the Treasury,"

The noble Baroness said: The purpose of this amendment is to probe the circumstances under which the Treasury would give consent for a local authority to borrow other than in sterling, whether that consent would be general or would apply to a particular authority, and how it would be exercised. The Explanatory Notes, which serve as my bible here, make it clear that the Treasury could give approval for borrowing in currencies other than sterling, but I want to probe into exactly what that would mean.

Under what circumstances would the Government think it prudent and right for local authorities to borrow in other currencies? Can the Minister envisage a reason for doing so, and could he cite some examples of where other currencies might be used? Do the Government envisage allowing an adventurous authority to borrow, as an experiment, Japanese yen to

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take advantage of lower interest rates or would the power be exercised only as part of a general authority to borrow?

Can the Minister give examples of past borrowing in other currencies and how successful that was? What was it in the past that led Ministers possibly to include this power, by the exception that the Treasury might approve it? In the light of what we have been discussing, I hesitate to ask whether there would be parliamentary control over the general lifting of a ban on borrowing in any currency? Does the Chancellor envisage allowing it simply by direction, or would the permission be granted only by regulation? Would such an order be subject to parliamentary scrutiny?

Can the Minister give an explicit assurance that this power is not intended and would not be used under any circumstances to enable a general power to borrow in euros, as part of a back-door policy—

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