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Lord Hanningfield moved Amendment No. 189:

The noble Lord said: It is not at all clear to me why the Government believe it necessary to stop local authorities charging the market rate for their services through the exercise of this power. Many local authorities will be dismayed that, having been granted a general power to charge for discretionary services, they are to have their hands tied through this unnecessarily restrictive caveat. My amendment would remove that restriction.

We understand that that power is to be exercised primarily to promote the economic, social and environmental well-being of our communities and is not to be seen as a money-spinner. That is fine.

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However, in order for local authorities to be able to provide a service and to raise their standards of service provision, it is clear that on occasion they might want to over-recover their costs in order to invest in service improvements. To be prevented from doing so is likely to lead to a gradual deterioration of service.

Will the guidance on the exercise of that power allow over-recovery for the purpose of re-investment? Having glanced through the draft, it is not clear to me that that would be the case. Furthermore, where a local authority chooses to enter the marketplace, is it not obvious that it should do so on a commercial basis? Businesses will not welcome the provisions, which will distort local markets.

I appreciate that the Minister will probably take the view that the purpose of the powers is to enable local authorities to step in to provide services where the local market cannot or will not do so. That may, in many cases be true, but should we not also consider the powers as an opportunity to stimulate local markets? That will not be the effect of having a large, uncommercial player taking part. I beg to move.

Baroness Hamwee: We, too, want to probe Clause 94(3). The grouping includes not only Amendment No. 189, but Amendment No. 190, to which our names are attached—well, mine is; I am not sure why that of my noble friend Lady Maddock was left off—Amendment No. 190A, also in our names, and Amendments Nos. 191 and 192, to which I am not sure whether the noble Lord, Lord Hanningfield, spoke, which stand in his name.

I almost feel that I should declare an interest in that when I chaired the planning committee of the London Borough of Richmond upon Thames in the mid-1980s I had a rather entrepreneurial deputy chair who thought that we ought to be charging developers for the valuable advice being given to them entirely free by planning staff. We did, for a bit. We charged only 25—probably below the real cost, but I hate to think how much we cost the authority, because McCarthy and Stone brought us all the way to this House. Since then, I have been looking forward to local authorities having the power to charge, because that is entirely proper. So I begin by welcoming the provision.

However, like the noble Lord, Lord Hanningfield, I wonder why Clause 94(3) is required. Indeed, starting from the McCarthy and Stone case, which concerned whether local authorities have the vires to charge, I am worried whether including the provision would enable another McCarthy and Stone to state that authorities were not able to do what they wanted to, because they were not balancing income and expenditure over a period. That may be technical, but it could be a real problem.

In the draft guidance from the ODPM, we read that the Government want to allow for the uncertain costs of setting up, which is why the guidance suggests taking one year with another. Like the Minister, I feel the need of a thesaurus here, because I have written, "surely more flexibility than that is required", but it is required. For instance, an assessment of the take-up may need to be made over a period.

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Amendment No. 190A is intended to define the costs of provision. I have used a fairly well-tried formula, which includes the direct and incidental costs of provision; it does not allow people to bung in everything that they can think of and call it a cost, but, quite properly, it extends to costs beyond those narrowly associated with the provision.

Lord Rooker: Talking of bunging-in, reading through my speaking notes, there is a lot of bunging-in in them. I know that this is an important set of amendments and that there are a lot of them, but I shall try to keep my explanation brief and understandable.

Within this group are attempts by two separate routes not just to allow but to push an authority into unrestricted commercial activity in discretionary service provision, irrespective of that authority's performance. That is a real worry and the number one reason why we cannot accept the amendments.

The effect of Amendments Nos. 189, 191 and 192 is to allow authorities to engage in unrestricted commercial activity in discretionary service provision irrespective of that authority's performance. The general power to charge in Clause 94 applies to all best value authorities. Best value authorities include not just local authorities, but also police and fire authorities, national parks and certain town and parish councils. The Government do not intend that that general power should be linked to performance.

The purpose of providing a new general power to enable best value authorities to charge for discretionary services is to encourage them to enhance their existing services and develop new ones that will help to improve the service they provide to their community. We do not intend through the new power to provide a new source of income for authorities, but to allow them to cover their costs.

As I said, the provision on charging in Clause 94 is not about allowing authorities to enter into commercial activity in their discretionary service provision. The Government are not opposed to authorities engaging in commercial activity—I want to make that absolutely clear. Indeed, we are proposing new powers for best value authorities to enter into commercial activity by trading with private sector organisations. Those proposals are set out in Clauses 96 and 97, to which we shall presently turn. But we believe that such commercial trading should be carefully controlled, including that the trading should be undertaken through a company and that it should be available only to those authorities which have demonstrated a high level of performance.

Under the charging power that we propose, an authority will not be required to charge for a service and may charge some recipients more than others, as long as, overall, it complies with the duty that the noble Baronesses and the noble Lord seek to remove. But it is not intended that authorities should as matter of policy cross-subsidise services between recipients—for example by deliberately charging some recipients more than it costs to provide a service and others less—while, overall, charging no more than the costs

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incurred over a period of years and thus complying with the duty. That would be a recipe for disaster and we do not want to go down that route.

Amendment No. 189 would remove the duty in Clause 94(3). That would mean that charges under the power would no longer be limited to cost recovery. That would be contrary to the purpose of the charging power. Importantly, it would also interfere with and undermine the controls proposed under the powers to trade, to which I have already referred, which are provided in Clauses 96 and 97. That is because all best value authorities would as a result be able to engage in unrestricted and uncontrolled trading activity in discretionary services through the general charging power.

Amendment No. 190 also attempts to allow uncontrolled commercial activity in discretionary service provision, and is similar to an amendment proposed but not debated when the Bill was considered in another place. But the effect of Amendment No. 190 is not, I fear, what was intended.

I have already explained that the purpose of providing a new general power to enable best value authorities to charge for discretionary services is to encourage them to enhance their existing services and to develop new ones.

The key effect of Amendment No. 190 is that it would alter the relationship between income from charges and costs of provision. In the Bill, the duty placed on best value authorities requires them to secure that the income from charges does not exceed the costs of provision. That means that the income from charges must be equal to or less than the costs. The constraint here is on the income from charges.

But Amendment No. 190 turns the duty around, so that costs of provision do not exceed the income from charges. That means that costs of provision must be less than or equal to the income from charges. Here, there is no constraint on the income from charges. Indeed, accepting the amendment would sanction commercial activity under the charging power and would allow authorities to set charges at any level, as long as the income from the charges for discretionary services remained greater than the costs of providing those services. As I have already described, that would be contrary to the purpose set out in Clauses 96 and 97.

Amendment No. 190A defines the meaning of,

    "the costs of provision",

in Clause 94(3) as:

    "all costs of, and incidental to, the provision of the service".

I am sure that the amendment is intended to make the provision easier for authorities to interpret. It seeks to define the term "costs of provision", and thereby to interpret for authorities what they may include within such costs when assessing charges to be made for a particular discretionary service. However, in doing so, it does not offer any practical definition.

In Clause 94, "costs of provision" is deliberately not defined so as to give authorities maximum discretion and flexibility in its interpretation, both now and in

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future. Authorities should be free to establish their own robust methodology for assessing the costs of providing a discretionary service.

Clause 94(6) provides that best value authorities should have regard to guidance that the Secretary of State or the Welsh Assembly may issue. We have recently consulted on draft guidance, a copy of which has been provided to the Committee. The consultation period closes at the end of this month. In the guidance, we have suggested that authorities should draw on existing and familiar principles set out in CIPFA's best value accounting code of practice for establishing the costs of providing a discretionary service.

In the light of this explanation, I hope that noble Lords will withdraw the amendments. I can see why they were tabled but their consequences are such that we could not possibly accept them.

6 p.m.

Baroness Hamwee: I have been wondering whether to come back at the next stage with an amendment to Clause 94(3) stating that the income will not exceed the approximate costs, or something like that. In other words, if a local authority is a penny or two out, it will not be caught out. Can the Minister comment on that today? I can table such an amendment for the next stage, but I am trying to save time.

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