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Baroness Hamwee: My Lords, we are grateful to the Government and the Minister for this amendment. I am particularly grateful to the noble Baroness, Lady Gould of Potternewton. I do not believe she had

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anticipated contributing to the debate, but she made some very telling points from her own very long and deep electoral experience.

I have one or two questions to put to the noble Lord. I note that the amendment refers to "any guidance" which means that there is no requirement on the Secretary of State or the National Assembly for Wales to issue guidance. I appreciate that it is sensible for the Government and the National Assembly to give themselves an opportunity to consider what is necessary in this area, but if the noble Lord has any news on how the matter might be progressed, I know that that would be considered with interest. I say that because I hope that guidance is issued.

The second point I should like to make is that, having consulted on the matter, this is an issue that is often raised in the local government world when considering local government legislation. We have become accustomed to hearing the noble Lord, Lord Bassam, say, "Of course we are going to consult". I hope that he will say it again today, thus confirming that the disability organisations will be consulted, allowing those who really can make helpful contributions to what should be set out in the guidance to do so.

Lord Bassam of Brighton: My Lords, noble Lords on this side of the House are very consultation-friendly and of course we shall encourage all views to be brought to us on these matters and that best practice is commonly adopted.

On Question, amendment agreed to.

Lord Rooker moved Amendment No. 18:


    After Clause 117, insert the following new clause—


"GENERALLY ACCEPTED ACCOUNTING PRACTICE: POWER TO AMEND ENACTMENTS (1) The appropriate person may by order amend or repeal an enactment relating to a local authority if he considers it appropriate to do so in the light of generally accepted accounting practice as it applies to local government.


    (2) It does not matter for the purposes of subsection (1) whether the enactment itself relates to the accounts of a local authority.


    (3) No order under this section shall be made by the Secretary of State unless a draft of the statutory instrument containing the order has been laid before, and approved by a resolution of, each House of Parliament.


    (4) In this section—


"enactment" includes an enactment contained in this Act or any Act passed after this Act;
"local authority" means—
(a) a body which is a local authority for the purposes of Part 1, or
(b) a parish council, a community council or charter trustees."

The noble Lord said: My Lords, Amendment No. 18 sets out a new clause regarding accounting practices and the power to amend enactments. I shall take a little time to explain the clause because it has been drafted in response to a point which came up in Grand Committee. Indeed, the matter has also been looked at

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by the Select Committee on Delegated Powers and Regulatory Reform. I want to set out in a proper response the reasons why we have produced this new clause.

The clause would give the Secretary of State in England and the National Assembly for Wales power to amend or repeal, by order, any enactment relating to a local authority in the light of generally accepted accounting practice as it applies to local government.

It is in part a response to the Liberal Democrat amendment to Clause 18 tabled in Grand Committee, as reported in the Official Report on 4th June at col. GC 220. Clause 18 concerns the definition of a local authority company and the Opposition amendment reflected the pressure from local government for a modern, all-purpose definition of such a company. In resisting that amendment, we acknowledged that it raised an issue of real importance and I promised that we would bring forward our own measure on Report.

Our new clause will achieve all that the Liberal Democrat Opposition amendment was meant to do. It will enable the definition of a local authority company in Clause 18 to be brought into line with accounting practice. The timetable for that action will depend upon the work being done by the Chartered Institute of Public Finance and Accountancy. CIPFA is currently working on a revision to its standard local government accounting code to incorporate a group accounting requirement for companies. As soon as the CIPFA code is ready, the proposed new power would be used to substitute the accounting definition for a statutory one.

The need to update the definition has arisen in particular as a result of work being taken forward on the Treasury-led Whole of Government Accounts exercise in which the Audit Commission and CIPFA are also closely involved, along with officials from the Office of the Deputy Prime Minister and the Welsh Assembly.

This initiative to produce a consolidated set of accounts for the whole public sector, as required by the Code for Fiscal Stability, must encompass all central and local government bodies, including not only local authorities but also those companies in which they have a major interest.

The present definition of a local authority company now in the Bill for the purpose of the new prudential system would not meet the needs of the Whole of Government Accounts exercise. The result is that authorities would have to undertake two different accounting procedures in relation to their companies. This would be onerous and unwelcome, and potentially more unreliable than operating a single set of procedures. So the new power will serve as an important function in solving that problem relating to companies.

However, the new clause goes further. It allows other aspects of the local government finance system to be harmonised with appropriate accounting practices and to be adapted to reflect future developments without the need for primary legislation. Such a move would implement the Government's policy objective of

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bringing public sector accounting more into line with generally accepted accounting practice—GAAP. There has also been pressure for a move in this direction from the former Select Committee on Transport, Local Government and the Regions, as well as from the Commons Standing Committee on this Bill.

As this is a power to amend primary legislation, we propose that orders exercising it should be subject to the approval of both Houses of Parliament. We also submitted a memorandum on the new clause to the Delegated Powers and Regulatory Reform Committee of your Lordships' House. In its response, the committee commented that it did not find the delegation or level of scrutiny inappropriate. However, the committee identified two areas where it considered that further clarification might be helpful to the House, and I should now like to address those two issues.

The committee noted that the clause offers no definition of the term "generally accepted accounting practice" and asked how the scope of the power is in practice to be limited. In leaving the term undefined, we were aware of setting a precedent. The Government Resources and Accounts Act 2000 requires the Treasury to use its powers to ensure that departmental resource accounts comply with generally accepted accounting practice subject to adaptations that are necessary in context, although it does not give a definition.

In fact, the expression has a well-established meaning. In the UK, it means the aggregate of the accounting practices that companies are required to follow in preparing their accounts. It includes elements drawn from the companies Acts and uncodified accounting practice, but its principal source is the practices recommended by the Accounting Standards Board, a body independent of government.

For local government, accounting practice is established by the code issued by CIPFA. This is a statement of recommended practice within the Accounting Standards Board framework. The Accounting Standards Board will not award that status unless the local government body complies with generally accepted accounting practice and, in particular, any accounting standards issued by the board. The only exception is where local government is unable to comply with generally accepted accounting practice because of statutory constraints. The link with generally accepted accounting practice, a standard that is independent of government, is the key to understanding how the clause will work and how its scope will be limited. I can best explain this by citing some examples.

First, generally accepted accounting practice itself may change, perhaps to a new standard issued by the Accounting Standards Board. Accounting practice is developing rapidly and a number of important new standards are in the pipeline. CIPFA will wish to incorporate those changes in the local government code, but may find that it cannot do so because of incompatible primary legislation. This is where an order made under the new clause could assist by amending the inconsistent statutory provisions.

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Another possible scenario is where generally accepted accounting practice does not itself change, but CIPFA decides that it wishes to bring the local government code into closer conformity with generally accepted accounting practice. Again, an order made under the new clause may assist by amending statutory provisions that are either directly incompatible or are so closely linked that a difference in definitions would impose a burden on local authorities. That last situation is the one that I have already mentioned in relation to companies.

This is how we would see the new power being used. In each case, the provision of generally accepted accounting practice which was behind the order should be readily apparent. It would be easy for Parliament to check that we were following this approach when the order came before it for approval. Powers to amend primary legislation by order are always of concern to this House and to the other place, and rightly so, since they can confer extensive freedoms on the government of the day.

However, the effect of this new clause is significantly different. It only affects legislation to which accounting practice is directly relevant and, when the power is used, the Secretary of State will be giving up his own freedom to devise accounting practices and will be choosing to rely instead on standards imposed by independent accounting bodies.

The second matter raised by the Select Committee on Delegated Powers and Regulatory Reform was the link between the new power and that already provided for in the Bill under Clause 21. The latter enables the Secretary of State to specify codes that are to count as proper practices. The Committee sought clarification of the relationship between the concepts of proper practices and generally accepted accounting practice. I am happy to confirm, as the Committee requested, that the local government accounting code to which I have referred as the route by which generally accepted accounting practice is imposed on local government is exactly the same code as the one identified under Clause 21(2) as proper practice.

The two powers work in different ways. Clause 21 ensures that local government accounting practice is compliant with appropriate professional codes—again, normally those issued by CIPFA. However, that power could not be used to amend existing legislation that might be acting as an obstacle to the adoption of proper practices. That is likely to be an issue of increasing concern over the next few years. We know that there are likely to be major developments in national and international accounting practice to improve transparency and reduce the scope for the kind of creative accounting highlighted in the Enron affair. For example, there could be fundamental changes in the treatment of borrowing and investments, the full implications of which may not become clear for some time. Those changes would need to be applied in local government. Clause 21 is unlikely to be adequate on its own for that purpose, but we are confident that the new clause would make that possible.

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In conclusion, I should add that the need for such a power has been recognised by the Local Government Association. In its latest briefing on the Bill, the LGA said that it supports the new clause, as it allows a wider range of definitions to be revised by order in line with accounting practice. The measure also has the support of CIPFA, of course.

I apologise for taking so long to explain what is a complicated matter, but I felt that the Committee deserved a response and that it was better to put that response in Hansard. Of course, the explanation is also important for those outside who will operate the procedure.

I beg to move the amendment.

4 p.m.

Baroness Hamwee: My Lords, we welcome the amendment. I particularly welcome not having had to have any hand in its drafting or indeed the drafting of the new clause that CIPFA asked me to table in Committee. I am pleased that the matter is moving to a resolution.

The Minister answered all my questions bar one. In Clause 21(4), "enactment" is defined to include


    "any enactment contained in . . . this Act . . . [or] any Act passed after . . . this Act".

Will the Minister confirm that the term also extends to any enactment passed before the Bill is enacted? After all, that seems to be where the problem is. I am almost wholly certain that that must be the case, as the clause says not "any enactment means", but "any enactment contained in". However, I would welcome confirmation of that.


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