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7.15 p.m.

Baroness Hanham: I have tried to read the draft regulations as well as sorting out the Minister's response to my question. To some extent, I can see the entanglement between subsections (1) and (2). Subsection (2) states that if something is now a capital asset, it should have been a capital asset when it was bought. I am not sure about the relationship between a capital asset and the capital receipt received for it.

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I have a couple of other questions. Is a capital asset only something acquired by capital expenditure when it would be in the position of assets required under leasing arrangements? I do not know whether that point was dealt with. An example is the payment of a mortgage on the acquisition of a building. If the point cannot be dealt with now, I am happy to receive a written reply. I do not think that the Minister responded to my question on the definition of capital expenditure. This matter will be a kernel part of the Bill and the local authorities' responsibilities, so I may need to return to it later.

Lord Rooker: I am taking advice, as I have referred in my remarks to other clauses, particularly Clause 16, in dealing with this point. When we reach Clause 16, I shall be able to answer the noble Baroness. It is a very inadequate approach, but it is dictated by how the amendments have been grouped. We are dealing with some points more than once, but I must adhere to the list of amendments that I have been given. The definition of capital expenditure will be dealt with when we debate Amendments 61, 62 and 63 to Clause 16. There will also be a clause stand-part debate, if required.

Baroness Hanham: I thank the Minister. Before we finish, when is a capital receipt not a capital receipt?

Lord Rooker: When it has not been received, I suppose. Other clauses relate to the use of capital receipts and non-money receipts. I know that there is jollity about subsection (2), but it tries to define in normal language how the system operates in local government at present. We are not inventing the wheel; this is part of a normal process. If at the time of an asset's disposal it had to be bought again through capital expenditure, it is a capital asset. There must be cases—but I cannot think of one—where an asset can become a mixture of revenue and capital or something so that by the time of its disposal its nature has changed slightly. Anything below 10,000 is not treated as a capital receipt. We know that, because it is stated in the regulations, and I have already drawn attention to it. If I have given an inadequate answer, as I feel that I have done, I will be happy to return to the matter. This is one area on which I will have to write to the noble Baroness if there is a problem. I will do so before the next Committee sitting.

Baroness Hanham: I thank the Minister for that. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 38 not moved.]

Baroness Hanham moved Amendment No. 39:

    Page 5, line 3, after "provision" insert "in relation to a local authority which is not debt-free at the time of the receipt"

The noble Baroness said: If the Minister is not prepared to delete Clause 3—I think that he is not—we believe that this alternative should be agreed at the very least. Its purpose would be to make the subsection inapplicable to debt-free councils. We will return to the

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matter later, when we discuss the use of capital receipts. When an authority is debt-free, it is excessive and onerous for the Secretary of State to have the ability to regard a receipt as a capital receipt, in view of what he has in mind in Clauses 10 and 11. I beg to move.

Lord Rooker: Again, we are dealing with an issue that will be split between different groups of amendments. Amendment No. 39 relates to Clause 9, which concerns capital receipts. Subsection (1) first defines a capital receipt as the proceeds of the sale of an asset. Subsection (3) then allows that definition to be varied by regulations. Under subsection (3)(b), regulations could define as a capital receipt a sum that was unrelated to the disposal of any asset. The amendment would prevent regulations under the latter power being applied to debt-free authorities.

I can best explain how we intend to use the power in Clause 9(3)(b) by reference to Regulation 8 in the draft regulations that we have placed in the Library. That regulation defines as a capital receipt the sum that an authority receives when it obtains the repayment of a loan or grant that it had made to another body for capital expenditure. Such a sum does not arise from the disposal of an asset, but it needs to be treated as a capital receipt. That is because the grant or loan would normally have been funded out of the authority's capital resources—money that may have been raised by the authority itself borrowing. So, when the money comes back to the authority, we need to ensure that it can be used only for capital expenditure and not to meet revenue costs.

That is achieved by defining the sum as a capital receipt. Draft Regulation 17 ensures that capital receipts may be spent only for capital purposes. A similar rule exists under present legislation. As now, this provision needs to apply to all authorities, whether or not debt-free.

The amendment may have been prompted by concerns that this power could be used to extend the scope of the pooling arrangements provided for in Clause 11. That is, however, firmly ruled out by the terms of Clause 11(3), which says that pooling can apply only to receipts from the disposal of an interest in housing land. I hope that my explanation will make our debates on pooling arrangements less complicated. With those reassurances, I hope that the noble Baroness will withdraw her amendment.

Baroness Hanham: I thank the Minister for that. The response begins to touch on the problems that we will have over the pooling of capital receipts, the nature of debt-free authorities and how they are placed in the position of pooling. I agree that the trouble with having to move amendments as we do is that we end up touching on some areas that will be dealt with later. As we will deal with the matter in detail when we reach the provisions on pooling—perhaps not today—we might return to it then. With that in mind, I beg leave to withdraw the amendment. I hope that we do not deal with pooling today.

Amendment, by leave, withdrawn.

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Baroness Maddock moved Amendment No. 40:

    Page 5, line 10, at end insert—

"( ) Regulations made under this section shall be subject to affirmative resolution by both Houses of Parliament."

The noble Baroness said: In moving Amendment No. 40 I wish also to speak to Amendment No. 41. The amendments relate to parliamentary scrutiny and consultation. Given our opening discussion on capital receipts, it is even more important that we scrutinise and consult properly when the regulations are made. Previously, the Minister has said that they do not want too much scrutiny; however, there have been times when there has not been insufficient scrutiny in the area of housing finance in the past. Indeed, we have had to have last-minute regulations and changes, particularly in relation to housing associations.

We have perhaps reached the part of the Bill—how capital receipts are dealt with—that gives the least freedom to local authorities. I am sure that in the ensuing amendments, which I understand we will not be discussing tonight, there will be matters to be raised. Having listened to the questions of the noble Baroness, Lady Hanham, and the Minister's reply, I think that it is important that there be proper scrutiny and consultation before any changes are made. Such changes can be crucial to the local authorities and others involved, particularly in the provision of housing. I suspect that the Government will find it easier to convince us that there was proper consultation than they could convince us that there was proper parliamentary scrutiny of changes to the regulations. I beg to move.

Baroness Hanham: We support the amendment. The draft regulations may change. Before any regulations are put forward, it seems perfectly proper that the House should have the right of seeing them. I support both the scrutiny and consultation aspects. The Government seem to have accepted the need to consult the local government associations, but other authorities have been identified. As usual, I would support consultation with them.

Lord Bassam of Brighton: Amendment No. 40 relates to Clause 9, which defines capital receipts. The clause includes a power to vary the basic definition by regulations. The Bill as drafted provides for such regulations to be made under the negative resolution procedure.

When drafting the Bill, it seemed to us right to opt for the negative resolution procedure here, since the similar power under the present capital finance system

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relies upon that procedure. Since then, of course, all the regulation-making powers in the Bill have come under the scrutiny of the Delegated Powers and Regulatory Reform Committee. In its 16th Report of 2nd April 2003, covering this Bill, the committee recommended no change in the procedure proposed for the Clause 9 power. In view of that, the amendment is unnecessary. We have a very good track record of following recommendations from that committee. Here, we are sticking exactly to its recommendation, as we think that it is the right way to deal with the issue.

Amendment No. 41 would require consultation with local government representatives, CIPFA and the Audit Commission. In some ways, it reflects earlier amendments that sought to include in the Bill an obligation to consult prior to making regulations.

The local government associations, CIPFA and the Audit Commission are the very organisations that we consult as a matter of course on capital finance regulations. They were very closely involved in the drafting of the regulations that are placed in the Library of the House. We will continue to consult those organisations, and we very much value their comments and recommendations. We do not think that there is a need to include the proposed provisions in the Bill. We hope that the assurance that there will be continued consultation on the amendments will satisfy the noble Baroness so that she feels able to withdraw the amendments.

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