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Baroness Hanham moved Amendment No. 9:

"( ) In deciding under subsection (3) whether a determination by the Mayor represents an affordable level of borrowing, the London Assembly must have regard to the likely effect of borrowing to that level on the precept levied by the Greater London Authority on each of the London Boroughs."

The noble Baroness said: This group of amendments also deals with the Mayor of London. The amendments seek to ensure that in deciding whether the Mayor is setting sensible and affordable borrowing limits for the Greater London Authority and the functional bodies, the members of the Assembly and the functional bodies must take into account the likely effect of the proposed borrowing limits on the level of the precepts to be levied on London boroughs. Current experience shows that the boroughs are the cats that are kicked whenever the Mayor decides to go for higher expenditure on a policy and wants a bit more money.

The boroughs need a fair deal from the Mayor, but they currently do not believe that that is happening. The precept has increased every year by about one third. It is increasing remorselessly and despite all the efforts of the Assembly members to bring it under control. I think it fair to say that they are not always successful in bringing the extra figures down to what the boroughs believe to be a reasonable level. Therefore, apart from requiring a two-thirds majority in relation to borrowing, the amendments would require that consideration be given to the impact of the borrowing on the levy and precept on local authorities. That would at the very least prevent anything happening without the knowledge of the Assembly. It would also impose a test of transparency and a duty of care. In our view that is a sensible safeguard. I beg to move.

Baroness Hamwee: Perhaps I may first take up a comment made by the noble Baroness in speaking to the previous group about a mayor deciding in the middle of the year that he or she would like to borrow money for a new project. I think that the issue is wider than that, and to that extent I share her concern. I assure her that the monitoring that the London Assembly has undertaken in the current term is not simply a once-a-year exercise after which we forget about it. It is important publicly to conduct regular monitoring and to question both the Mayor and the functional bodies about their spending. Last year, for example, it was revealed that Transport for London is heading, in about five or six years, towards a hole in its budget of about 600 million. Therefore, mid-year borrowing to deal with anticipated problems could indeed be an issue.

However, having said that, I should say that borrowing is almost the least of it for Transport for London and the other transport authorities. Judgments about fare levels are the most important issue. Only about 2 per cent of Transport for London's current income of about 2.3 billion is raised by the precept, and that percentage will decrease when

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London Underground is handed over. So although the cash figures are not inconsiderable, as a proportion they are very much the least of it.

My overall response to this group of amendments, particularly Amendment No. 9, is that although we must have regard to the effect on the precept, why should we single out borrowing in that respect? One should have regard to the effect on the precept in terms of the whole budget. I would hate to see the Bill send out the signal that other aspects of spending are less important in that regard. It is of course possible that the Assembly would support borrowing and its effect on revenue for a particular project but not support other spending. So I think that the picture is perhaps more complicated than one might initially think.

As for Amendment No. 11, we have already referred to the role of the functional bodies. Although they are consulted on their own budgets and within the parameters of guidance issued by the Mayor, the budget is the Mayor's budget.

Lord Bassam of Brighton: Amendment No. 9 relates to Clause 3(3) which requires the Mayor to consult the London Assembly before setting potential borrowing limits for the GLA or one of its functional bodies. That fact has been made clear in earlier discussions and debates. In our view it is unnecessary to say that the Assembly must have regard to the effect on the precept which will be levied on the London boroughs. As I said earlier, the borrowing limit will inevitably be considered as part of the normal budgetary process. That should ensure that the impact on the precept is properly considered. However, I take the point made by the noble Baroness, Lady Hamwee, that not only borrowing limits should be considered in the context of the precept; all the other budget elements should also have a bearing on it. It should therefore be seen as part of a wider debate and in that wider context. The effect of the precept is of course going to be a key concern for the Mayor and the Assembly, who are answerable to the electorate through the ballot box for the GLA's budget and precept.

Amendment No. 11 relates to Clause 3(4) which requires the Mayor of London when setting the borrowing limit for the GLA's functional bodies to consult those bodies. Amendment No. 11 would require the bodies' board members to consider the effect of the precept levied on the London boroughs. As I said, it is for the democratically elected Mayor and Assembly to consider the impact of the precept on London taxpayers and to justify fully—or not—their decision to the electorate. I think that we have to put some confidence into the political process. In a sense, the amendment rather underlines that fact. We need to let the political processes run their course.

As I explained before, the boards of the functional bodies, which are not elected, do not have a formal role in setting the precepts and should not be expected to concern themselves directly with precept and taxation issues. The amendment would give them that role. We think that the democratic process should have the override here and run its course. Clearly that will not

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entirely satisfy the noble Baroness. However, the processes are at work and throw up some of the strange idiosyncrasies that inevitably happen in the budget process. I think that we have to trust that process.

Baroness Hanham: I thank the Minister for his reply. The democratic process is fine every four years when people are sharply brought face to face with those seeking their votes to be elected Mayor of London, but words such as "consult" and "consider" seem terribly feeble in this context. I am trying to separate out the difference between a local authority and the Greater London Authority where the sums borrowed could be inordinately larger than those sought by any individual local authority. As the noble Baroness, Lady Hamwee, indicated, Transport for London certainly has the potential to hoover up vast borrowed sums and resources.

I fully accept that this issue is examined by the London Assembly and that the budget must be approved by two thirds of the Assembly. However, I still see pockets of potential problems where borrowing might fall outside that annual review and might need to take place in the interim. Despite the assurances that I have been given, I remain concerned about that. At the moment, however, I shall not press the issue. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 10 and 11 not moved.]

The Deputy Chairman of Committees: I should inform the Committee that if Amendment No. 12 were to be agreed to, I shall not be able to call Amendments Nos. 13 to 17 inclusive owing to pre-emption.

Baroness Hanham moved Amendment No. 12:

    Page 2, line 17, leave out subsections (5) to (7) and insert—

"( ) In carrying out any determination or review under this section, a local authority or functional body shall have regard to any relevant code of practice or guidance issued by the Audit Commission or the Chartered Institute of Public Finance and Accountancy."

The noble Baroness said: The purpose of this amendment is to try to dismantle the Government's intended cat's cradle of regulation-making powers about local authority borrowing, about which we have briefly spoken, and to replace it with a genuinely prudential regime in which local authorities would be freed of onerous regulation but would be required to take heed of codes of practice issued by CIPFA or the Audit Commission.

Local authorities are currently being driven mad by excessive regulation on all fronts and there is no guarantee that any of the Bill's provisions will improve the situation. The Bill promises the same nightmare for directors of finance, beginning with the subsections that this amendment seeks to remove.

We just have to glance at subsection (6) to see the likely scope and scale of the regulation that the Secretary of State is able to impose. I am not at all reassured by the only regulation of which I have a copy—part 1 of the code of practice, the draft regulation which the Minister kindly arranged to be

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sent to me during my brief week off. That regulation refers only to the code of practice of CIPFA. That is the only aspect mentioned or given credence under the regulations provided for in subsections (5) and (6). It is the only one I have seen. It may be that the code of practice, which has been laid in the Library and which I will certainly read carefully before Report stage, deals with some of the regulations which it is suggested that the Secretary of State might be able to make under subsections (5) and (6). Equally, however, it may not; if that is so, no draft regulations yet exist regarding the main bulk of Clause 6.

The CIPFA code of practice could be alternated with one from the Audit Commission. However, if the code of practice is going to be very clear on all those matters, I will not want to press the amendment. I would be glad to hear what the Minister has to say. I beg to move.

4.45 p.m.

Lord Rooker: Amendment No. 12 deals with the power in Clause 3 to which the noble Baroness has taken exception, in particular the wording of subsection (6). The amendment deals with the way in which local authorities are to set their affordable borrowing limits. It would remove the Secretary of State's power in subsections (5), (6) and (7) of Clause 3 to make regulations about setting limits. Instead, the clause would explicitly require authorities to have regard to a relevant code issued by the Audit Commission or the Chartered Institute of Public Finance and Accountancy.

There is a simple answer to the noble Baroness's questions, into which no one need read anything subversive. We have always intended to make regulations requiring authorities when setting their prudential limit under Clause 3 to have regard to the code that CIPFA is producing. Copies of the draft code and draft regulations are in the Library. For the avoidance of doubt, they are in a box marked "Secondary legislation, Local Government Bill". A separate set of secondary legislation relates to this Bill. The clause as now drafted gives us the option of identifying some other code, including one of the Government's own. The clause also allows us to use regulations directly to specify how the borrowing limit is to be set. We must preserve that flexibility. This is the bald point which goes to the heart of the amendment.

We are very grateful to CIPFA for producing the draft code and we fully recognise that it is an independent body, as is the Audit Commission. Neither of those bodies is compelled to publish a code and we must not take it for granted that they will always wish to do so. If, for any reason, CIPFA ever ceased to issue its code, the clause as drafted would allow the Government to produce their own guidelines, either in the form of a code or regulations, or a combination of the two. Without that power, the system would become completely unworkable.

The provisions are there to keep the legislative options open, in case practical experience of operating the new system highlights concerns which need to be

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tackled through regulations. They provide a fallback just in case it is needed. The other important point is that the Audit Commission and CIPFA are independent organisations; the Government are in no position to order them to produce a code. We are extremely grateful to them for doing so. It is that code to which we shall refer, and the powers in subsections (5), (6) and (7) are simply a back-up for the future.

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