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Lord Bassam of Brighton: This amendment seeks to insert a new subsection in Clause 4 relating to the powers in subsections (1) and (2) to impose borrowing limits. Before those powers could be used, the amendment would require a statement to be laid before Parliament explaining the reasons for the limits set on particular authorities under the provisions of Clause 4(1), or for imposing a limit on an individual authority under Clause 4(2).

Subsections (1) and (2) already make clear the general circumstances in which these powers may be used. However, the amendment would require the Government to give Parliament a specific reason for setting borrowing limits for particular authorities. Parliament has never been involved in scrutinising the allocation of local authority borrowing limits which, as I said earlier, every year since 1990 the Government have set by the issue of credit approvals. Under the new system, setting national or individual borrowings would achieve exactly the same result. We can see no need for a statutory requirement for parliamentary approval of that process. There has not been one in the

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past and when the party of the noble Baroness was in government, it certainly did not see the need to have such a process in place.

If any authority ever felt that the Government, in imposing a borrowing limit, had acted improperly or unjustly, of course it would be fully entitled to seek judicial review. In addition, in the case of the individual limit provided for under Clause 4(2), urgent action could sometimes be needed to prevent imprudent activity. The procedure suggested in the amendment could lead to delays which might have potentially serious consequences for local council taxpayers. I am sure that, given her strong background in local government finance and her desire to see prudence in local practice, the noble Baroness would not want to assist in that process.

I hope that, with those comments and assurances, the noble Baroness will feel able to withdraw her amendment.

Baroness Hanham: I enjoyed the digs. They have been the best part of the Bill so far. To say that something has never been done in Parliament before seems a jolly poor excuse for not doing it now. We are moving into a new regime. The expectation is for permissiveness rather than restriction. If, for some reason, that permissiveness is not to be allowed or agreed to, or there is some major reason why there should be a limit on a particular local authority's borrowing power, it seems not unreasonable that that matter should be brought to Parliament for an explanation. It puts it into its proper perspective and makes it a very unusual event. I do not think that the Minister's response to my amendment is seriously satisfactory enough to enable me to say that I shall not pursue the matter in future. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hanham moved Amendment No. 26:

    Page 3, line 8, at end insert—

"( ) A limit set under subsection (1) or (2) may not, in respect of any local authority, be set at a level less than the level of that local authority's borrowing on the date that the draft regulation is laid."

The noble Baroness said: This amendment would require that any enforced borrowing limit for a local authority should never be set below that authority's level of existing debt. I find it hard to believe that it is the purpose of this provision that an authority could be put in breach of its own limit, in itself a statutory offence, on the direction of the Secretary of State. I hope that the Minister will say that he agrees with this amendment or that he undertakes to give the Committee another guarantee that its intended purpose will be built into any regulations issued in the future.

If the Minister were to accept my argument, authorities that have been prudent and have low levels of borrowing relative to their borrowing limits would

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have to take more of the hit to achieve a given macro-economic effect, because authorities that are close to their borrowing limits cannot, in practice, have their borrowing limits cut. I beg to move.

Baroness Hamwee: On Amendment No. 26, I would like to understand what would happen in practice if there were what would effectively be a retrospective application?

Lord Bassam of Brighton: The amendment would insert in Clause 4 the condition that no borrowing limit may be imposed on a local authority below its actual level of borrowing. That is commonly understood. I fully accept that the Government should not be able to impose a retrospective limit on an authority to make its existing debt unlawful. The legislation, as drafted, certainly does not allow that. Any borrowing limits set under the powers in Clause 4 can only serve to restrain the future level of borrowing.

The safeguard here depends upon Clause 2(1). It provides that an authority may not borrow money if doing so would result in a breach of any borrowing limit it has set for itself or which the Government has imposed upon it. So, if a loan does not breach such a limit when it is actually taken out, nothing can later make it unlawful.

I hope that that answers the point. I think that the noble Baroness may have slightly misunderstood what was in front of her, but I hope that my explanation clarifies matters.

Baroness Hanham: I thank the Minister for his explanation, and I am happy to accept it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6 p.m.

Baroness Hamwee had given notice of her intention to move Amendment No. 27.

    Page 3, line 10, leave out "subject to a corresponding limit"

The noble Baroness said: I tabled Amendment No. 27 to probe whether the national limit applies only to some authorities or to all of them. However, the noble Lord, Lord Bassam, explained not only that point but said that subsection (2) onwards is not a part of subsection (1) and is not reliant on it. It is a whole set of rights on the part of the Secretary of State to impose borrowing limits rather than them all being a part of the national economic reason. Unless the Minister feels there is anything more to be said, I shall not pursue this. I did not say "not moved" to the amendment originally, because it is sometimes a bit confusing to do that when everyone has their notes ready. Apologies for that, but I thank the Minister for his explanation.

[Amendment No. 27 not moved.]

Baroness Hamwee moved Amendment No. 28:

    Page 3, line 16, at end insert ", and

( ) the rights of the transferor to borrow in the event of failure by the transferee to repay borrowing undertaken on the basis of the transfer."

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The noble Baroness said: The draft regulations do not cover Clause 4(4) so far as I can see. This is the opportunity to ask when—and, indeed, if—more draft regulations will be published. It is a serious point. I know that noble Lords frequently complain that we do not have regulations on the real meat of any particular provision, and I am not talking just about this Bill. But the real issue is for local authorities to know what the detail will be and to have the opportunity to comment, particularly if the new regime is to be effective from April next year—less than a year away. It will not be that long before local authorities are into the start of the budget-making process for next year.

My amendment was to probe the effects of the transfer of headroom, which is an odd concept in itself. What would happen if a transferee were in default? Is there any problem for the transferor? I hope the answer will be no, but that is what the detail of Amendment No. 28 is designed to ascertain. I beg to move.

Lord Rooker: This is one of the rare cases where what has happened has not thrown the notes out, as the numbers are consecutive. What throws the notes out is changing the order of everything at about 1 o'clock in the afternoon. That causes a problem. It does not prevent us from giving proper answers but that might happen on one occasion. As this is our first sitting, however, I suppose it is to be expected.

On Amendment No. 28, there is, I hope, a perfectly satisfactory explanation to the noble Baroness's question, which relates specifically to the transfer of borrowing headroom which, as it says in my notes, "I have just described". I would have done that if I had dealt with the notes on Amendment No. 27. That is part of the problem. The notes were written for the two amendments together, as a package. That is an important point. I shall now try and explain how it works.

If there were a national limit it would apply to all authorities. However, the local impact could vary. It is possible that under the limit, an authority might be allowed a higher borrowing capacity than it could make use of. In that case, it would be free to transfer the surplus borrowing capacity—that is, the headroom—to any other authority. This would increase the national limit for the latter, allowing it greater freedom to borrow. That is basically the way the system works. Such transfers would be arranged voluntarily between authorities themselves. The Government would not be involved. However, Clause 4(5) would allow the Secretary of State to make regulations about the operation of the system. The power is drafted in sufficiently broad terms to allow regulations to deal with any aspect of the arrangements that we might conceivably wish to cover.

However, the amendment seeks to specify one additional use of the regulations. It envisages the case in which, following a transfer, the authority receiving the headroom has borrowed on the strength of, and then failed to repay, the debt. The amendment would allow regulations to make provision about the

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borrowing rights of the authority which made the transfer. I presume the idea is that it would suffer some penalty.

The first point to make is that no authority has ever defaulted on a loan. However, in case that ever occurs, Clause 13 provides substantial protection for lenders. Secondly, local authorities borrow for very long periods—25 years is typical—and the most usual arrangement is for the principal of the loan to be repaid only at the end of that period.

As I have explained, this transfer of borrowing headroom would happen only while a national limit was in place. Such limits would be very exceptional and short-lived affairs—indeed, we hope one is never needed. So, in the unlikely event of default by the recipient of the transfer, it would occur well after the national limit had ended.

It would be quite unreasonable for there to be any impact on the authority which had made the original transfer of headroom, perhaps many years earlier. Public expenditure policy does not require it, and there would be no obvious mechanism for delivering such a result. I hope that with those assurances I have satisfied the noble Baroness on Amendment No. 28, while using a bit of the explanation relating to Amendment No. 27.

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