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Lord Radice: My Lords, at this time of night, I shall not make a "right of reply" speech—as noble Lords will be glad to hear. I thank noble Lords for their high-quality speeches. To my surprise, there was overlap between the two subjects—it was not always to my taste, but it was there. Above all, the arrangement allowed both reports to be debated, which might not have happened otherwise, so there was a severely practical reason for it. On the whole, the debate has been a success. I commend the Motion to the House.

On Question, Motion agreed to.

Monetary Policy

Lord Peston rose to move, That this House takes note of the report of the Select Committee on Economic Affairs on The MPC and Recent Developments in Monetary Policy (2nd Report, HL Paper 66).

The noble Lord said: My Lords, despite having placed the burden on my noble friend Lord Barnett, it appears that I must beg to move as well. Just before doing so, I certainly strongly believe that the debate was worth while, and that conducting it jointly a fortiori was worth while—not least because otherwise, neither of us would have had a debate, but also because the two reports intermingled. I beg to move.

Moved, That this House takes note of the report of the Select Committee on Economic Affairs on The MPC and Recent Developments in Monetary Policy (2nd Report, HL Paper 66).—(Lord Peston).

On Question, Motion agreed to.

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Official Report of the Grand Committee on the

Local Government Bill

(Second Day) Wednesday, 4th June 2003.

The Committee met at half past three of the clock.

[The Deputy Chairman of Committees (Lord Haskel) in the Chair.]

The Deputy Chairman of Committees (Lord Haskel): Perhaps I may remind noble Lords that except in one important respect our proceedings will be exactly as in a normal Committee of the Whole House. We shall go through the Bill clause by clause; noble Lords will speak standing; all noble Lords are free to attend and participate; and the proceedings will be recorded in Hansard. The one difference is that the House has agreed that there shall be no Divisions in a Grand Committee. Any issue on which agreement cannot be reached should be considered again at the Report stage when, if necessary, a Division may be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.

Perhaps I may also remind noble Lords that it is not necessary to touch the microphones when speaking. The engineer in the corner will switch them on and off as required.

Clause 10 [Non-money receipts]:

Baroness Hanham moved Amendment No. 42:

    Page 5, line 16, leave out paragraph (b).

The noble Baroness said: In moving Amendment No. 42, I shall speak also to Clause 10 stand part. In our debate on the first day of Committee, I asked the Minister to clarify when a capital receipt was a capital receipt and when it was not. I believe that at the time he thought it a most uninvigorating question because it did not then receive a reply. But it was important. These clauses of the Bill are about just that. Because of their opaque nature, local authorities will be in considerable doubt as to what constitutes a capital receipt.

In Clause 10 we come across the concept of a non-money receipt. It is not helpfully described in subsection (1)(b) as being where,

    "a local authority receives otherwise than in the form of money anything which, if received in that form, would be a capital receipt under that section".

Presumably, the repayment of loans, the disposal of mortgage portfolios and payments made to redeem landlord's share of a payment, which are described in the draft regulations and which we discussed briefly on the first day in Committee, qualify as money receipts.

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There are as yet no other references as to what receipts are, and certainly none which describe non-money receipts.

So what do the Government have in mind in this context? A planning gain, for example? If that were to be one, there would be a considerable outcry as negotiated provisions are often crucial to a council achieving its strategic objective. It may be that that is not in the Government's mind, but it would be most helpful to have an answer.

It is important that the Government clarify their intentions over this subsection and its meaning and I ask the Minister to do so today, otherwise, we will once again be left to consider the, so far, non-regulation.

My comments on Clause 10 stand part continue the concerns I have outlined in the previous amendment regarding what are non-money receipts. However, this also gives me the opportunity to raise the question of why the Government feel it necessary to become embroiled in these matters, whatever they are.

What, if any, abuses have taken place which have brought these non-money receipts into focus, and under what circumstances would the Government feel it necessary to use the powers under subsection (2)(a) and (b)? In particular, what is the purpose of the power in subsection (2)(b), which allows the Government to fix the trigger date for deciding,

    "when the deemed receipt is to be treated as taking place"?

Do the provisions mean that matters such as, for example, a contribution made by local companies to council activities—sponsorship, ongoing support for sport or facilities or the provision of play equipment—is where a council receives a partial non-money benefit? Could such assistance be caught in its entirety and be considered as a non-money benefit?

The Government must explain these provisions more clearly. It is interesting that there is not one word about this particular clause in the Explanatory Notes, which leads me to believe that either the authors of the Bill had not made up their minds as to what it meant or that the authors of the Explanatory Notes had no clue either. I beg to move.

Baroness Maddock: I have considerable support for the noble Baroness, Lady Hanham, in moving this amendment and I look forward to hearing what the Minister has to say. I want to speak to Amendment No. 44 standing in my name and that of my noble friend Lady Hamwee. It ensures that any new regulations made by the Minister are subject to affirmative resolution by both Houses of Parliament.

The questions raised by the noble Baroness, Lady Hanham, explain why we have proposed the amendment. Certain matters are unclear, particularly planning gain. The noble Baroness, Lady Hanham, also indicated that the Explanatory Notes do not deal with this clause and I therefore hope that the Minister will be able to explain that.

A later amendment relating to the clause will also highlight some of our main issues of concern.

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The Minister of State, Office of the Deputy Prime Minister (Lord Rooker): I want to make two statements. The first is to answer the debate and the second is to answer the question I was asked on Monday. I shall also deal with Clause 10 stand part. I shall deal with things in order.

First, Clause 10 and Clause 9(3) are lifted wholesale from the 1989 Act of Parliament passed when the Tories were in power. We did not invent the drafting; much of it follows from what already exists. Therefore, the vicious criticism of the drafting of paragraph (b) amounted to an own goal. I have to defend the provision because it appears in the Bill. But there is a good reason for it. By and large, it has been shown to be effective and it has worked.

On Monday, the noble Baroness, Lady Hanham, asked about the meaning of the terms in Clause 9(2) and I undertook to look further into the issue she raised. It is easier to put the matter on the record—it might take a week to receive a letter but Hansard will be out tomorrow. That is not a criticism of my officials, it is the system.

The definition of "capital receipts" is crucial to our understanding of the debates on Clauses 9, 10 and 11. The noble Baroness, Lady Hanham, asked whether a capital asset is acquired only by capital expenditure and what would be the position of assets acquired under leasing arrangements financed on the revenue account. She gave an example of an asset acquired under a mortgage.

A reminder of the context may be helpful. We are dealing with the definition of "capital receipt". The starting point is Clause 9(1). That states that a capital receipt is,

    "a sum received . . . in respect of the disposal by it of an interest in a capital asset".

Clause 9(2) goes on to state that,

    "An asset is a capital asset . . . if at the time of the disposal, expenditure on the acquisition of the asset would be capital expenditure".

The key words in that respect are "would be". They make it clear that we are dealing with a notional situation. We must ask whether, if we were acquiring the asset now, the expenditure would rank as capital expenditure. If the answer is yes, the receipt is a capital receipt. That has nothing to do with the way in which the receipt was acquired in the first place and, in particular, nothing to do with the way in which it was financed.

That approach follows the wording of the equivalent provision in the 1989 Act and is familiar to local government practitioners. We are not therefore acting in a way unfamiliar to people who will deal with this legislation.

The noble Baroness, Lady Hanham, also asked about acquisitions under a mortgage. I should make it clear that that question would not arise for the local authority. It is forbidden to mortgage or charge its property as security for money borrowed and that prohibition is continued in the Bill in Clause 13(1).

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The noble Baroness also asked about assets held under leases. The treatment of leases, both under accounting practice and local government capital controls, varies according to the nature of the lease. If the lease is effectively a way of paying for an asset over an extended period—in other words, a form of borrowing—the authority is taken to have acquired an asset at the beginning of the lease. In that case, there would be a capital receipt if the asset was subsequently disposed of.

However, if the lease is effectively the hiring of an asset, which at the end of the lease is returned to the lessor, the authority is taken to be paying for the service and no asset is acquired. If the asset is not owned by the authority, there cannot be a disposal so there cannot be the acquisition of a capital receipt. I realise that "verbalise" is not always convenient, but I hope that when one reads the answer tomorrow it will be a satisfactory explanation.

As regards the two amendments, Clause 10 is a necessary anti-avoidance measure to ensure that the controls on capital receipts in Clause 11 cannot be evaded by an authority agreeing to receive consideration otherwise than in the form of money. There are numerous ways in which that might be done. Clause 10(1) therefore addresses the problem by giving the Secretary of State power to apply Section 9 to non-money receipts; that is, to treat the receipts as though they were money.

The principle that non-money receipts can be controlled in the same way as capital receipts is established in Clause 10(1). The precise technical details of the amount which the authority is to be treated as having received and the time when it is received is left to the regulations under Clause 10(2). These regulations reflect the existing system—we are not changing it.

Amendments Nos. 42 and 44 seek to limit the Secretary of State's power to make regulations about the treatment of non-money receipts. Non-money receipts take various forms. Local authorities may dispose of a capital asset and be paid not in cash but by being given some other asset, service or benefit. The simplest case is straightforward barter where one property is exchanged for another.

Amendment No. 42 would remove the Secretary of State's power to make regulations about certain non-money receipts—specifically, those receipts that the authority receives for reasons other than for the disposal of a capital asset; for example, a repayment for a loan the authority has made. If they were cash receipts, they would be treated as capital receipts. That is because they have been received in respect of capital expenditure; that is, the making of the original loan.

To continue the loan example, without the power to make these regulations an authority making the loan could receive a non-money repayment in the form of a service such as street cleaning. That would mean that authorities could use their capital assets—for example, by making a loan to a registered social landlord—in return for revenue funding. In other words, they could sell off much-needed housing stock artificially to

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reduce council tax because they are receiving a revenue service. That conflicts with the fundamental principle that authorities should not use capital resources to fund revenue expenditure.

As drafted, Clause 10 relies on the negative resolution procedure. That is consistent with the position under the present capital finance system, which depends heavily upon secondary legislation. Amendment No. 44 would make the power in Clause 10 subject to the affirmative resolution procedure. Without apology, I rest on the fact that the Delegated Powers and Regulatory Reform Committee, in its 16th report of 2nd April this year reporting on the Bill, did not recommend any change in the procedure for the Clause 10 powers. In view of that, I believe that the amendment is unnecessary.

In order to avoid upsetting the sensibilities of the members of that committee, I do not say that they agree with the Government. I say that if the committee disagrees with the Government, it is entitled to say so in its report. Where it chooses not to say so, and does not comment, I am entitled to say that it has not made a recommendation for change and therefore the negative procedure we have put in the Bill is held to be satisfactory. I am not misusing the wording of the committee in any way, shape or form. If its members want to change their rules, that is fine; it is up to them. Unless they report on a particular power in a Bill, I am entitled to consider that they are content with that power as set out. I dare say that that will cause me to receive a letter from the committee—but there you are!

3.45 p.m.

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