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You can engage with service users, and there was huge appetite for that. I can give noble Lords example after example of people with mental health problems having impacted on social policy and on the policy of the organisation and teaching professionals how they should inspect services. What matters is how we do that and the value that we give it. Perhaps I can give one example. Over the past 18 months, I have chaired a review group on the effectiveness of drug treatment in prison. We looked at the huge amount of money that we spend on drug treatment in prison, which is a very difficult environment. We brought together 20 experts: governors, a chief probation officer, experts in the drugs area and academics. Everyone came round the table to explore a strategy for commissioning and producing outcomes. We spent 18 months meeting, arguing and fighting.

One thing on which I insisted was talking to service users, offenders, people currently in prison, ex-offenders and their families. We were not given a budget for it

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because they said, "It is not practical. No offender or ex-drug user will engage with the process, but have a go". On a shoestring budget and in the space of six weeks, we engaged user groups across the country and asked them to talk to offenders, users, carers and families. We anticipated that at most 50 people would respond, but in those six weeks 550 current and ex-offenders and drug users responded.

Ultimately, the views of those drug users affected the way in which the final report-the Patel report-was written. They underpinned everything that happened. This effected the best evidence base ever gathered on drug treatment in prisons. They mirrored what that evidence base said and highlighted what drug users want and how they want it. With their evidence and their views, we produced an outcomes model. That would not have happened unless we had engaged with the so-called most difficult, hard to reach groups. People have a huge appetite to be involved. It does not matter whether two or three groups want to consult with service users; they should, because while they are consulting them and asking them what they want, they might learn something about what they should be doing and how they should be delivering their service.

It is crucial that this provision-that you cannot deliver a service without engaging service users-is in the Bill. I am sure that in his heart of hearts the Minister believes that. It is an important thing to do. My anxiety about not putting that into the Bill is that services will not do it; it will be an excuse not to do it. You have to force them to do it because it delivers goods. I will go away and think about this, and I would appreciate it if the Minister thought more about it and talked to his officials to see whether there is any way in which we could strengthen the provisions of the Bill that push those heading the new services to talk to service users. It might not have to be a substantial number, or whatever the legal phrase is, but this should happen because it is fundamental to the issue of the community's right to challenge. The Minister himself said that this was about handing power to the community. Service users are a key aspect of the community, so we have to push this.

Lord Shutt of Greetland: My Lords, I am holding the line with the Bill. Anyone who thinks about challenging must put together all sorts of things to prove the viability of their outfit and the people involved. If they have any wit, they will say that they believe that they can do it and will have done some work in order to prove that they are up to the job. If the noble Lord were a consultant to people wanting to put forward a proposal, that is the sort of thing that he would urge them and everyone else to do.

Lord Patel of Bradford: Absolutely-if I was a consultant, it would be done. Unfortunately, however, there are not many folk like me about. We can discuss rates later. I take on board what the Minister said. I will think about it further and I would appreciate it if the Minister, too, would think further about whether we can strengthen this. I am sure that the issue will come back when we consider further aspects of the Bill. In the mean time, I beg leave to withdraw the amendment.

Amendment 129W withdrawn.

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Amendment 130

Moved by Lord Jenkin of Roding

130: Clause 68, page 57, line 31, leave out paragraphs (a) to (d) and insert "any public body, including, but not limited to, local authorities, government departments, government agencies and non-departmental public bodies"

Lord Jenkin of Roding: My Lords, I shall speak also to Amendments 131 and 132. No doubt other noble Lords will speak to Amendment 130ZC. We have discussed the question of challenges to local authorities by local communities and other bodies that wish to run their services. I am looking for a more ambitious community right to challenge. I support what is in the Bill. It is a very useful expression of bringing forward one aspect of the big society so that local people can become involved not just in yapping at the heels of those who provide a service but in putting forward suggestions for how they could do it better. I like that-but why does it stop at local government services?

My right honourable friend Greg Clark, the Minister of State for Decentralisation and Planning Policy, recently gave a lecture on the subject to the Local Government Association. He was on the right lines when he stated that Ministers are considering inviting councils and their partners to bid to manage a range of public services using devolved budgets. This recognises that government services or services provided by non-departmental bodies at national level may be run better and with more sensitivity to local needs and circumstances if they are run at local level. They do not all have to be run nationally. That is the point of the amendment. I am trying to provide a way in which my right honourable friend's aspirations could be put into practice across the public sector.

If we are going to get this whole process going-I admired the eloquence of the noble Lord, Lord Patel, when he spoke of what was necessary-we need to generate enthusiasm for, and understanding of, what is being offered. This should be across the board and not limited to local government services. Therefore, my amendment extends the right to challenge across all public services, not just those guided by local government. Local authorities should be able to express an interest in running devolved national public services on behalf of their communities, which should be able to offer to run the services. They may need help, which local authorities are best placed to deliver.

Looking at it again with rather greater reluctance, I have to say that the suggestion that local authorities should provide a list of the services that they might be interested in devolving smacks of bureaucracy and I am not particularly enthusiastic about it. I ought to withdraw the amendment; I speak to it with no enthusiasm at all and I am grateful to see that that view is shared.

I will concentrate on the other amendments in this group, which propose extending the measure to services provided nationally by central government and by non-departmental public bodies and so on, and giving local authorities the right to bid and the duty to help local communities to do this. If you take London as an example-I declare my interest as one of the joint presidents of London Councils-the figures show that in 2009-10 central government spent over £47 billion

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in London. Local authorities actually spent much less than that-about £29 billion-so only 40 per cent of the total is spent by local authorities. By extending this measure, you are opening up a substantially larger pool from which one could get services provided locally. Of course, not all services can be delivered locally but a great many are. I shall give some examples in a moment.

Extending the community right to challenge and to apply it to a wider public sector would effectively address a lot of the problems that are inevitably caused by national bureaucracy. That often stands in the way of operational efficiency and, in particular, local sensitivity. A council could say, "If we did it for you, we would have to do it for everybody". How often has one heard that excuse? What we are looking for in this Bill is a greater opportunity for public services to be run locally, where they can be responsive to local needs and circumstances. I will give some examples in a moment.

One possibility is to have cross-departmental services that could be run effectively from a local level. Another is to empower local authorities to support local aspirations. Research commissioned by London Councils last year identified over 150 non-departmental public bodies that spend more than £100,000 a year that have an influence in London. If one takes account of even the Government's recent efforts to try to reduce the number of these bodies, as in the Public Bodies Bill, London Councils estimates that at least 120 of these organisations remain active in the capital. Many of them are responsible for the delivery of public services for which local communities have no statutory ability to hold anyone to account. This is the target one is aiming at, the substantial number of bodies that deliver services locally but are not in any way locally accountable. Therefore local authorities should be able to help them.

The third point is that, if you are going to have a community right to challenge, for that to be a genuine one, it should be open to all regardless of the local community's expertise or experience. It will need help and the local authorities are best able to give that. If you can achieve that, you will be achieving a degree of local accountability for the services that are there for local people. Not only communities but the local authorities themselves should have the ability to challenge national services on behalf of their communities and alongside other agencies, and to run services delivered by national public bodies within their area. This would ensure that communities have some local control and that there would be some local accountability.

5.30 pm

Before I sit down, I shall mention a few examples of where I believe this could be made to work. Noble Lords will be aware of the European Social Fund, which is run by the Department for Work and Pensions. The DWP has recently proposed to spend its European Social Fund money on providing employment support for families with multiple problems. That is a very worthy aim, but does it have to be provided nationally? Surely if you have different communities with different circumstances and families with very different needs and abilities, you need to have services that reflect those differences. Therefore, it seems to me that it should be open to a local authority, or even to a local

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community, to say, "Yes, we are used to working with families with multiple problems, and we could run this service more effectively. We would like the right to challenge it". I think the DWP might find that greatly improves its ability to deliver the service-well, it would not be the DWP, it would be the others. The important point is that this would then become a local service and reflect local needs and local circumstances. That is one example.

Another example may surprise noble Lords. It is Jobcentre Plus. It is again a national service run, ostensibly, on national criteria and to national standards right across the country, but anyone will tell you that in areas of high unemployment-some of them are in some of the London boroughs-there are quite different needs from those in areas where there is relatively little unemployment because services are growing and business is providing the opportunity. Surely here it should be possible for a local authority to say, "Look. We could run this better in our area. We would like to challenge the Department for Work and Pensions and offer to run the Jobcentre Plus in our area. We could do it better, and probably less expensively".

Youth justice and services such as youth offending teams, which are currently funded through the nationally sponsored Youth Justice Board, might be more effectively delivered if they were tailored to local circumstances in line with the new financial incentives model for crime reduction. Youth crime, as we all know-indeed, I suspect that no one knows better than the noble Lord, Lord Patel, who eloquently spoke about similar problems a moment ago-is a complex and multifaceted issue which would arguably benefit from an area-based approach.

There is the whole question of business regulation. Businesses are not uniform and do not form a uniform pattern across the country. It is another area that could be run by local authorities or local councils. There are other examples, but I hope I have said enough to suggest that this is a realistic extension of the right to challenge, and it should include national services, not just local authority services. I beg to move.

The Deputy Chairman of Committees (Viscount Ullswater): My Lords, I must advise your Lordships that if this amendment is agreed to I will not be able to call Amendment 130ZA because of pre-emption.

Lord Greaves: My Lords, I have Amendment 130ZC in this group, which I will speak to in a minute. Before I do, I want to say that I think we agree with a very great deal, if not everything, of what the noble Lord, Lord Jenkin, has just said. We certainly agree with the broad thrust of his amendments. It seems illogical that if there is to be a system in which local people can, in the terminology here, challenge the existing providers of a service and suggest that they might do it better, that should be only for services that are provided by local government, not by other public bodies, because when it comes down to it services provided by local government, as opposed to other public bodies, are fairly arbitrary. There are good reasons for a lot of them, but for some of them it is not very clear why local government does them and someone else does not. It is certainly not clear why someone else does a lot of things and local government does not in this

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country. The division is arbitrary and it seems to me that the relevant criteria should be whether it is a local service and then whether it is desirable that this should apply to it.

We agree very substantially with the noble Lord's Amendment 130, and with his Amendment 131, which would allow a local authority on behalf of its community to take over in appropriate places. Of course, there is a great question mark over how funding is going to be arranged. You immediately get into all sorts of questions about whether there would be ring-fenced funding for a particular service or whether it would be rolled up in the general local government grant, the existing formula funding or whatever is going to replace it, and how that would be organised. Nevertheless, those are not insuperable problems. Initially, one assumes that there would be ring-fenced funding for particular services that were transferred, but the basic principle is something that we would certainly support.

The noble Lord is not enthusiastic about his Amendment 132 requiring local authorities to produce a list of challengeable services. He suggested that it is bureaucratic. However, there is certainly another side of that coin because the Government are going to lay down a list of services that are not challengeable and that are excluded. Indeed, they are going to give themselves power in regulations to change that list from time to time, as we have already discussed. If people know what they cannot challenge, presumably they can work out what they can challenge, so it is not really a problem and the noble Lord's amendment is probably unnecessary, whether or not it elicits enthusiasm.

My Amendment 130ZC would allow a district council in a two-tier area to challenge the county council and to suggest in certain circumstances that it could take over county services. There is an ongoing argument in some areas between districts and counties about what counties do and what districts do. In my own county of Lancashire, there was a great deal of devolution from the county to the districts in 1974. It simply followed existing practice with the old municipal boroughs and even some of the larger urban districts in the county. In recent years, the county council has been pulling services back and taking them to the centre, even though it is a large, far-flung council. I do not know exactly how far it is from north to south, but it cannot be far off 80 or 100 miles, and it is 60 or 70 miles from east to west, so it is a huge county. It is also an area with strong districts, some of which used to be county boroughs and are still resentful of having been downgraded, and some of which have always been strong municipal boroughs and are now the basis of strong districts.

District councils across the country vary hugely. Some are, frankly, quite feeble and weak affairs, and others try to behave as if they were unitary authorities but do not quite get away with it. Nevertheless, there are a lot of services that it can be argued would be better run at a local level and which in many cases have been. An example is local highway functions that cover not the main roads but local streets. In Lancashire, they were run by most of the districts until three or four years ago when the county decided to take most highway powers back to itself. Demonstrably, the system

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has not improved since then. Some would say that it has not got worse, but others might disagree with that. It is an area that could be challenged.

The whole area of leisure and recreation has a very local base to it in many cases. One example is country parks. Having a network of country parks across a wide council might be the best way to do it, or country parks might best be run at a local level and involving local people.

Lord Moynihan: I am grateful to my noble friend for raising that. Very briefly, a classic example of this are the national sport centres, which initially were set up to focus on excellence in sport and did so for many decades but which increasingly have come to serve the local community through community use and Sport for All. These are surely very good examples of where you can be far more aligned to local authorities-if they are run by local authorities-working with local clubs and with local governing bodies while protecting high-performance sport.

Lord Greaves: I am grateful to my noble friend for that intervention. Libraries are an example of this. In some parts of the country they are very controversial at the moment because they are being closed down on quite a large scale, while in other places they are not. So long as the existing funding for a library may be transferred to districts, there is no reason at all why districts cannot take libraries over. Indeed, the municipal boroughs before 1974 were the library authorities, and many of the fairly new libraries that now exist were built by the boroughs and not by the county council. If the county council is seriously looking at reorganising its library service, one of the ways in which it could perhaps increase the efficiency of libraries and local involvement in them is by transferring at least some of them to the districts. I am not saying that that is an ideal solution everywhere, but it is something that ought to be challengeable. There are a number of things like that.

As for national services, the ward I represent on the council had a recent problem of raw sewage flowing down from an inefficient septic tank system on a caravan site on a hillside and causing real problems to residents in the lane below. Noble Lords can imagine what their back gardens were like-not very pleasant at all. The Environment Agency became involved in this. It came and went and came and went, and the district council, which has no direct responsibility for it, became involved, and in the end it was the district council that actually organised the system, spent the money and connected the caravan site to the main sewage system. It then recharged the people who lived on the site and the people who own it. It was the district council that actually sorted it out on the ground, even though, as far as I could work out, the statutory responsibility lay with the Environment Agency. That is a classic example of the kind of service that, if transferred at a local level to a competent local council, might well be run better.

As for the river system, the Environment Agency is responsible for main rivers, but certainly in our part of the world some of the things that are classified as main rivers are tiny little streams. There is no reason at all why they should not be the responsibility of the

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district council. The district council has no statutory responsibility for rivers and it is not funded by government for it, but some district councils employ drainage officers because they are the sensible people on the ground who sort out flooding and drainage problems when they occur. How much better if they were actually statutorily responsible for it? I therefore support the noble Lord's amendment with some enthusiasm, and put mine forward with enthusiasm as well.

Lord True: My Lords, I put my name to the first of the two amendments tabled by the noble Lord, Lord Jenkin, and I endorse all that he said. I can imagine my noble friends the Ministers saying that it is not possible to graft this on to the Bill at this stage, but the principle is a very good one, as my noble friends Lord Greaves and Lord Moynihan have also said. If the Ministers cannot accede to these amendments now, I hope that they might be prepared between now and Report to talk to local authorities and local government associations about ways in which local authorities might be given opportunities to suggest ways of localising more services.

I must apologise-and this may be a relief to some-that I have to attend a full council meeting later this evening, and if I am not in my place at 7 pm, with the less-than-coalitionist ardour that there is on opposition benches in Richmond I might find that a division is called. I could not support my noble friend on the list of challengeable services because-and he has made this point-it would cause bureaucratic problems for local authorities. I did not put down amendments to Clause 74, which comes later, because it would have been discourteous, anticipating that I was not going to be here. However, I must say that the other form of list that your Lordships will discuss later this evening might, in my estimation, need at least two officers to compile these kinds of lists. Therefore, while encouraging my noble friends the Ministers to resist my noble friend's amendment, I also hope-in anticipation, as it were-that they will think more carefully later about the other lists that are imposed on local authorities in this Bill.

Finally, I support the suggestion about counties and districts, and of course I also support the principle relating to the Greater London Authority and London boroughs. Self-evidently, there are many things-in an earlier debate I gave the example of running high streets -that London boroughs could do far more effectively than a regional authority. I hope again that my noble friends the Ministers will consider that too.

5.45 pm

Baroness Thornton: My Lords, perhaps I may ask a question. I have a great deal of sympathy for the noble Lords' amendments. I am not sure what my Front Bench is going to say, but this sounds like a very useful discussion to have about how to extend local rights. My question, because I am a champion of social enterprises and the voluntary sector, is whether they, too, will be able to challenge for those national services that might appropriately be delivered at a local level. That would seem appropriate.

Lord Jenkin of Roding: Immediately, exactly the same bodies and people, including local charities and voluntary bodies, should be able to challenge these

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national services, in the same way as the Bill provides for them to challenge local services.

Lord Patel of Bradford: My Lords, I shall be very brief. I have listened carefully to what the noble Lord, Lord Jenkin of Roding, said, and I have read his amendment carefully. The basic principle of the proposal is exciting and warrants further investigation and explanation, although I agree that a list would be completely bureaucratic. As for the idea that we could take this a step further, I am excited by the community right to challenge aspect but would want to be assured that the amendments would not in any way, shape or form dilute the local community right to challenge.

Lord Shutt of Greetland: My Lords, I thank the noble Lords who have introduced these amendments. I wonder if I may deal first, out of sequence, with Amendment 132. This amendment would require local authorities to publish and maintain charitable services provided by all relevant authorities in their area. The Government are already asking local authorities to publish important information about services, and the Bill already enables relevant authorities to specify periods during which expressions of interest can be submitted for particular services, and requires them to publish details of these. This amendment would put additional administrative requirements on local authorities and falls into the trap of over-engineering the right, something which the Local Government Association has warned against.

Amendment 130 would change the definition of a relevant authority to extend community right to challenge to any public body. Amendments 131 and 130ZC propose changes to the definition of "relevant body" that would enable local authorities to challenge other relevant authorities, specifically government departments, agencies and non-departmental public bodies, under Amendment 131, and county councils, where the relevant body is a district council in a two-tier area, under Amendment 130ZC. The Bill already enables the Secretary of State to extend the right to other public bodies in regulations-back to our friend. Our recent consultation sought views on which other public bodies the right should be extended to. Many respondents said they felt that it should be extended to all public bodies. It was also suggested that local authorities should be able to challenge other types of relevant authority. Given this appetite, the Government are keen to explore the idea of extending the right to other public bodies. However, many of those respondents also felt that we should not rush into extending the right before evaluating its impact in its current form. Before extending the right, we would need to have detailed discussions with key interested parties, in particular to understand whether additional services might need to be excluded.

My noble friend Lord Jenkin usefully gave us various examples. I would just say that the examples are such that other Ministers and departments would have to get thoroughly involved and, by jingo, there would have to be some joined-up government in all this. I warm to the theme that it is exciting. I am just wondering whether it is too exciting for this Bill at the present time.

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Lord Jenkin of Roding: My Lords, I have been hugely encouraged by the amount of support all around the House for the fact that we should pursue this more ambitious right to challenge. I am very grateful in particular to the noble Baroness, Lady Thornton, for what she said, and for the enthusiasm and excitement of the noble Lord, Lord Patel. Turning to my noble friend, I have already indicated that I am not interested in the lists, and perhaps I should have withdrawn that amendment. However, it was encouraging to hear him say that the Government are keen to explore and that he would have to involve Ministers in other departments. If the localism ambitions are to be achieved then every department will need to be involved in this, not just the DCLG.

From what my noble friend Lord Attlee said in relation, for instance, to the discussions we had earlier about EU fines, I am aware that he now has to discuss this with all the other departments concerned, which is a good thing. If our amendments achieve that and nothing else, that would be worth while. My noble friend Lord Shutt has offered grounds for hope. A few weeks ago, when I discussed this with the Secretary of State, his reply was fairly brief. He said, "Really, we have got to be able to walk before we can run". My noble friend used the phrase "before evaluating".

I should like to feel that this is part of the Government's ambition, something which we can look forward to as an extension of the right to challenge, and something which can be seen to be very much part of the coalition's policy. Recognising that it might be difficult to put this provision into the Bill at this stage-it was not considered, I think, in the other place-we have to recognise that there are problems. However, I hope that my noble friends on the Front Bench will start consulting now with the other departments that will be involved. With that, I beg leave to withdraw the amendment.

Amendment 130 withdrawn.

Amendments 130ZA to 130ZE not moved.

Baroness Thornton: I am standing up to give the noble Lord, Lord Greaves, time to move his amendment, which comes before mine in this group.

Lord Greaves: My Lords, if the House is willing to be tolerant, I will admit that I was asleep.

The Deputy Chairman of Committees: My Lords, I have called Amendment 130ZD and it was not moved. I now call Amendment 130A.

Amendment 130A

Moved by Baroness Thornton

130A: Clause 68, page 58, line 7, after "authority" insert "who have formed an organisation for charitable purposes or a community interest company or industrial and provident society"

Baroness Thornton: In that case, I will speak to my amendments and give the noble Lord, Lord Greaves, a chance to catch up on his amendments in this group. Before I do so, I declare an interest as an ambassador for Sporta, the trade group of social enterprises which deals with local sports and leisure services, and as the founding chair of the Social Enterprise Coalition. I shall speak to Amendments 130A and 131A, and

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comment on some other amendments in this group, although I may leave that until they have been spoken to. My noble friend Lord Patel is right to say that Clause 68 is important. I have always believed that socially owned businesses, founded and run in this case by local people, have an important and valuable role to play in the provision of public services.

Amendment 130A seeks to put beyond doubt the kind of enterprise which can challenge and be considered appropriate to contract for the services under consideration. I seek clarification from the Minister about this because, as it stands, it seems that the expression of interest could be used by local authority employees setting up a private company. I believe that that might be a loophole that would need to be closed. Amendment 130A states that,

That covers basically all the organisations that are not private enterprises.

Amendment 131A again seeks to make completely clear an issue which is, in a way, about the size of the organisation. I believe that there should be a requirement that the expression of interest can be initiated by a local organisation or in collaboration with a local organisation. Many national charities already provide and contract for services at a local level-for example, Barnardo's and Action for Children, which I know about through a long association with them. I believe that those national charities, along with any national social enterprise-indeed, there are those that are contracting which are building social businesses providing social care-would want to contract for those services at a local level. But they have to prove that they are working collaboratively with local agencies to provide locally integrated solutions.

This would still allow national organisations, which have great skills and experience in delivering these services, to bid but would ensure that the Bill meets its main objective of devolving power and giving a voice to local communities. The involvement of a national social enterprise or a national charity may be the difference between a local body being able to challenge and contract for local services and it not having the capacity to do so. It is important that large and small, and local and national, collaborative working is part of this Bill and is put beyond doubt. That is what these two amendments are about. I beg to move.

Lord Greaves: My Lords, I apologise for falling asleep; it is these Zs all over the place which are doing it. I am not speaking to Amendment 130ZD, which I missed. However, Amendment 133ZN has exactly the same meaning. I was going to apologise for putting down the same amendment twice in the group but it seems that that was providential. I certainly have a great deal of sympathy and support for what the noble Baroness, Lady Thornton, has just said.

We put down amendments to take out the reference to employees not because we do not think that in appropriate circumstances it is a good idea for employees to take over running the services for which they are employed, but because we are not at all convinced that this Bill is the best place to legislate for employee buy-outs, employee buy-ins, employee takeovers or

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whatever. They do not quite fit with the concept of the community-however the community or somebody in the community is defined-making a challenge and saying, "We can run this service. Can we have a go please?". Employees are very different in that sense as they represent the producer side of the service rather than the consumer side and, clearly, if consumers or citizens or residents take over a service, they become producers as well. Equally, employees can make the same journey in the other direction.

6 pm

However, it is different and some of the amendments put forward from over the way have shown that if you are going to do it properly you may need different sorts of structures and organisations and to some extent a different legal framework. Things such as worker co-operatives are very different from an organisation in the community taking over running a park or something more ambitious.

There is also the question of how an expression of interest from employees will be measured by the council when it comes to procurement against alternative expressions of interest from the community or wherever. What is the basis for competition? Is it possible to set up competition on a fair basis when you have people so entrenched in the organisation and already running it? On the other hand, are they put at a disadvantage by being set against, perhaps, commercial organisations which may want to come in and take advantage of the procurement process? Perhaps it might be better if it were done on a separate and clearly understood basis run independently from the community process. It would be interesting to hear the Government's views on that.

Amendment 131ZB to Clause 68(5) refers to the definition of a relevant body. It is just a small question of definition. It says that the Secretary of State may specify in regulations, inevitably,

The amendment suggests it should read "category of bodies"; perhaps "category and classes of persons and bodies" might have been better. It reads at the moment as if it is referring to a particular person or body, which I do not think it means. Surely it should refer to categories or classes of people and bodies.

Amendment 131B probes the question of whether and how a voluntary body can make a surplus. It relates to Clause 68(7) and the text at the moment reads:

"The fact that a body's activities generate a surplus does not prevent it from being a voluntary body for the purposes of subsection (5) so long as that surplus is used for the purposes of those activities or invested in the community".

We are not quite sure what,

really means here and we suggest that a phrase such as,

might be better since we are talking about voluntary bodies-I think and hope-which operate in a particular area. That leads on to Amendment 131C to Clause 68(8) and the definition of a community body. It says that a community body means,

Our amendment would add,

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Again, this is a question for the Government. If a community body wants to challenge for a particular service in a particular area, whether it is the whole or part of a local authority area or quite a small neighbourhood, surely its existence as a community body should depend on the fact that it is active in that area and not somewhere else. That means that you would not get people in Liverpool challenging to run services in Leeds or people in Preston challenging to run services in Pendle, or is that what is intended? Is it intended that the community should be the community in which the service is provided and in which it is intended that the challenge should be made?

Lord Newton of Braintree: My Lords, I want to build with a couple of questions on what my noble friend Lord Greaves and the noble Baroness have said. Definition seems to me to be quite an issue on my scanning of this clause. The question that has just been asked about what community you have to be in, so to speak, is at least worth asking and it will be interesting to see the answer.

The other question is that I understand that there are definitions of charitable bodies and of industrial and provident societies. Is there a definition of community bodies? Where does the type of body known as a social enterprise come in all this? If you ask the Library for information on social enterprises, as I did once a few months ago, you discover that there are about six different definitions from different quarters. Is social enterprise embraced in all this? Is it defined in all this? Is it intended to be dealt with in the wrap-up clause about the Secretary of State having the right to define other bodies? A lot of definition problems are raised but not answered by this clause.

Lord Beecham: My Lords, I want to assist, in a sense, the noble Lord, Lord Newton, by clarifying the description of one particular-

Lord Jenkin of Roding: I apologise to the noble Lord, Lord Beecham, but for those of us who rely on the loop, the microphone is rather important.

Lord Beecham: I shall be very brief. My Amendment 131AA looks at the definition that the noble Lord, Lord Greaves, referred to in Clause 68(7). It seeks to tighten the reference to the surplus by saying that the fact that a body's activities generate a surplus does not prevent it from being a voluntary body for the purposes of the section. The original clause says:

With my amendment, it would say:

In other words, it is not a casual use; it is a prescribed use of the surplus in the way that you would find in a charitable organisation. I hope the amendment is not unhelpful and that it just emphasises the nature of the organisation and that the surplus is required to be used-as well as, in practice, that it may be used-for the purposes outlined. I hope the noble Lord will think about that and perhaps take the amendment back or accept that it strengthens the intention of the clause.

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Lord Patel of Bradford: My Lords, I shall be brief. I am specifically speaking to support Amendments 130A and 131A, both of which are concerned with the nature and type of relevant bodies that may submit an expression of interest under the community right to challenge.

As we have heard from my noble friend Lady Thornton, the purpose of Amendment 130A is to bring greater clarity to the definition of a relevant body-something the noble Lord, Lord Newton, raised-particularly to make it plain that this is intended to include not only charitable organisations but community interest companies and industrial or provident societies.

As the Bill stands now, the question as to what constitutes a voluntary or community body is unclear, as the noble Lord, Lord Greaves, has said. A voluntary body is defined in the Bill by virtue of not being a public or local authority and,

while a community body is simply one that carries out activities for the benefit of the community. There is potential confusion here. For example, does the Minister intend that a public or local authority is also a community body, and what of community interest companies which are allowed to make a surplus? Does this mean that they are not voluntary bodies for the purpose of this? The amendment that my noble friend Lord Beecham has suggested may be helpful in this case.

I am a firm believer in the potential for local community and voluntary groups to deliver services, provided they are given the right support. I am concerned that without the additional clarification provided by Amendment 130A some important groups, including industrial and provident societies-which, as we are all aware, have a proud and significant history of representing local people-will be excluded from the community right to challenge. I hope the Minister will support the intention of this amendment.

Amendment 131A is closely related to these issues and similar in intent to one tabled by the noble Lords, Lord Greaves and Lord Tope. This concerns the question of whether those relevant bodies that may wish to use the right to challenge to become themselves providers of services are in fact from or primarily working within the local area. My concern is that once a challenge is made under the community right to challenge, it might not be local community groups that enjoy the transfer of services but big business or non-local providers. Therefore, it seems essential that in determining who can make an expression of interest to run a service, priority should be given to those local community groups first.

If localism is to mean anything in practice, it should be local groups who benefit and, as people who live and work in the area, they should be the preferred option. I accept that there will be some cases where it is desirable for a regional or national provider-such as Barnardo's or National Children's Home, as my noble friend Lady Thornton said-to initiate the process. They will have a strong specialist offer to give but even in these cases there will be real benefits in encouraging local involvement and local partnership. The risk is that this becomes an open invitation for non-local bodies to seek entry into an area. Again, I hope the Minister will agree that this would be undesirable and look to support the amendment.

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Lord Shutt of Greetland: My Lords, there is rather a lot here and I thank noble Lords who have taken part. Before I come to my notes, Clause 68(5) refers to voluntary and committee bodies and they can be defined. It might not be absolute but they can be defined in some way or another. When the subsection says,

it does not say there about the community. That can be national. It then says, "a parish council", which is clearly local, and,

which might just be a partnership if it is two. If it is more, it can be any form of enterprise that was thought of. I am aware of the theology that exists in the different forms of co-operatives and so forth. There can be all sorts and then there is the catch-all in our friend, "regulations".

Let us see how we can cope with the notes that have been made on specific amendments. Amendment 131A and 131C would require the voluntary and committee bodies to have some local connection, whether operating primarily in or for the benefit of the community in the relevant authority area, or working with a body that does. We are keen to encourage local and national bodies to work together to submit expressions of interest and bid for any subsequent procurement exercises, but many national organisations do excellent work locally in their own right-particularly for communities of interest, which may not always be well supported by a local group. We would not, for example, want to prevent the Alzheimer's Society expressing an interest in running a relevant authority service. It is difficult to argue that it would not represent the interests of vulnerable, elderly people in a local area. These amendments could also prevent voluntary and community bodies that are successfully implementing innovations in service delivery from replicating their approach elsewhere.

Amendments 131AA and 131B propose different requirements around a voluntary body's surplus. Amendment 131B would require that surpluses should be used for the "benefit of", as opposed to being for the "purposes of those activities",

Amendment 131AA would require that any surplus was,

as opposed to simply being "used",

Amendment 131ZB would enable the Secretary of State to add "category of bodies" as a relevant body rather than "person or body". I am not clear what material difference these amendments may make.

6.15 pm

Baroness Thornton: Perhaps I may help the Minister with this because the point about my noble friend's Amendment 131AA is that where a voluntary body generates a surplus, it can be legitimately used for several purposes. It can be used to undertake further activities consistent with the social aims, as set out in its governing document, which could include but not

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be restricted to local community benefits. It could be used to invest in strengthening the organisation itself, so that it becomes more resilient and can expand its work, and it can be used to repay loans and other investment. It might, for example, include a payment of dividends to shareholders following a community share issue within the limits established by the incorporation of the community interest company or the IPS. Those are safeguards against excessive private gain. I do not think this is the right amendment but the point is that it seeks to clarify whether points two and three are permitted within the Bill. We might need to discuss this further.

Lord Shutt of Greetland: I am even more confused but I will endeavour to look at that in due course. As I was saying, the Bill already states that a voluntary body's activities should not be carried on for profit. The purpose of a voluntary body's activities should surely be to benefit the particular community it represents. As for what the noble Baroness has said, we are in Committee and we can clearly look at this again, but I saw this in simple terms. I cannot get it out of my head, quite frankly, that you may get a community association bidding which, in its building, has a kitchen where it will do its meals on wheels. It might make a bit of a profit from the meals on wheels service in that community. It seems to me that if it makes a small profit from that exercise, it can use that for the benefit of the rest of the association that it is carrying on in that building. That is as I see it in simple terms.

Amendment 130A would require employees of a relevant authority to set up a charity, community interest company or industrial and provident society in order to submit an expression of interest. Requiring employees to form a specified organisation in order to submit an expression of interest and get a fair hearing for their idea would create an unnecessary and bureaucratic burden. It risks putting employees off exercising the right altogether. The Government are committed to giving public sector workers the right to bid to take over services that they deliver, and the community right to challenge implements this commitment for relevant authority employees.

Baroness Thornton: I am sorry for interrupting the Minister again but this is a very important point. I can cite two examples. Sunderland Home Care was set up by home care workers as a co-operative and, quite rightly, the employees of that local authority in Sunderland provided much better terms and conditions to contract with Sunderland Council. Greenwich Leisure started the whole movement of leisure trusts because Greenwich Council was going to close down its swimming pools- this was 10 or 12 years ago-due to something called rate-capping, which some of your Lordships may remember, and it was the employees who initiated the move to contract with the local authority to take over all the leisure services.

Those examples both make a surplus-and quite right too-because that is how they reinvest back into their local communities, so that the charges in Greenwich for leisure services are now much lower proportionately than they were. They are also both able to support contracting in other areas, so that Sunderland Home

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Care now provides training for home care workers across the north-east. The point about this amendment is that by defining the legal form that community groups, or any group of employees, use to do the challenging, we actually safeguard the social purpose against private profit being made which then does not get put back into the community.

Lord Shutt of Greetland: My Lords, I understand what the noble Baroness is saying, but there is a concern about being overprescriptive. It is important that we do not do anything to put employees off. We can return to this; there is no reason why not; but we know what the intention is. It is to free up the opportunity for employees to take part in a right to challenge. I am far from certain that we should be prescribing that there are these various routes and it is outside the theology if they take the fifth route and not routes one to four. We need to be a bit careful about that.

Lord Greaves: If there are not to be clear structures which are recognised as appropriate, how do you prevent the situation in which two employees make a right to challenge when they have absolutely no support from the rest of the employees, but because they have made the right to challenge, the process has to take place?

Lord Beecham: Before the noble Lord replies, may I point out that I have an amendment dealing with precisely that matter as well?

Lord Shutt of Greetland: I am quite clear that, if there are two employees, we are back to the whole business about looking at who is backing this and whether the people who will ultimately benefit from this service think that it is a good idea. It is unlikely that the local authority would say, "Off you go; you look a great pair". It is very doubtful that that would be the case. That is the route to putting a stop to that. It may well be that our friend, regulations, will come into this as to the power of stoppage that there would be in these circumstances.

Amendment 133ZN would prevent the Secretary of State providing advice and assistance in using the right to a body that is formed of, or includes, any employees or ex-employees. That would introduce a disparity. It would mean that advice and assistance could not be provided to a voluntary and community body formed of employees and ex-employees, but could be provided to other voluntary and community bodies that did not contain such individuals. No decisions have been made on the form of any advice and assistance in using the right, but we expect to focus on those that need it most. This is likely to mean smaller, newer voluntary bodies, but it is sensible that we have the powers to provide assistance to any relevant body that might need it. I understand that an impact assessment has been done on this and the suggestion is that, across the country, £20 million will be required. It is not yet in any budget, but that is the suggestion in the impact assessment.

Clause 73(4) ensures that this includes employees who have formed a body to take on the delivery of a service, including where they have left the employment

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of the authority. This supports the Government's commitment to give public sector workers the right to bid to take over the running of the service that they deliver. I trust that these comments will mean that these amendments are not pressed at the present time.

Baroness Thornton: I rather expected that the noble Lord, Lord Greaves, would be doing the heavy lifting at this point in the debate. I thank the Minister. We need to have further discussions about this to make sure that we are safeguarding things. I say to the noble Lord, Lord Newton, that definitions are not a problem here, because we are seeking to create a variety of different ways for local organisations and groups to set up social businesses which will be able to contract for services. The way that they will define themselves is by choosing a legal framework which fulfils the purpose as outlined in the Bill. There are only a few things that they could choose: a company with charitable purposes; a community interest company or an IPS, a co-operative of a different sort. There is a limited number. They define themselves, in a way. It looks complex, because there are lots of different ways of doing this and, in fact, the Government's role in providing information support at local level will be very important. With that, I beg leave to withdraw the amendment.

Amendment 130A withdrawn.

Amendments 131 to 131C not moved.

Amendment 131D

Moved by Lord Greaves

131D: Clause 68, page 58, line 17, at end insert-

"( ) This section does not apply to any company or other body or person the activities of which are carried out for profit."

Lord Greaves: My Lords, I was very carefully not saying "Not moved" to any of those previous amendments.

I rise to move Amendment 131D, which is grouped with Amendment 131ZP and with the question on whether Clause 73 should stand part, which is to be moved by the noble Lord, Lord Patel, which should lead to another interesting debate. Amendment 131D is a probing amendment to stimulate a discussion which follows on from the discussion we have just been having about the nature of the organisations which might end up running local services, whether they are very local services, such as looking after a pocket park, or much more substantial services, such as taking over refuse collection. In relation to "relevant bodies"-in other words, the bodies that are challenging to take over services-my amendment would add the words:

"This section does not apply to any company or person the activities of which are carried out for profit".

It is clear that there is not an absolute distinction between profit-making and non-profit-making bodies. We have already discussed the way non-profit-making bodies might make a surplus, but for the purposes of discussion, that is fair enough. Amendment 133ZP is a belt-and-braces amendment, which would insert the same wording at the end of Clause 73.

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The fear about the proposed community right to challenge-and there is a lot of fear about the proposal-is that it will lead to the fragmentation, privatisation and commercialisation of a lot of council services; that, in the name of the community making the challenge and as a result of local community organisations, parish councils and whatever putting in the first challenge, the big boys will then come galloping in. The noble Lord referred to the risk of non-local bodies moving into the area. Perhaps there is a risk of local commercial organisations of a slightly cowboy variety, or, more likely, large corporate companies, coming in and taking over, all in the name of the community.

6.30 pm

The fragmentation argument is very important in relation to some services. It would be difficult in the area of refuse collection, for example, to fragment a service and have one parish council taking over its own little service; the whole question of economies of scale in refuse, recycling and so on might be lost if that happened. On the other hand, there might be circumstances in which that might work. However, there are clearly some services in which fragmentation is a problem. I am less concerned about fragmentation when it comes to truly local services; if they can be run at a local level, that is fine.

Some question whether this is a backdoor to privatisation and compulsory competitive tendering of the sort that we used to have, except at least that was done on an organised basis across services and authorities and the in-house services were able to compete with outside services-some did so very successfully. The fear is that this will result in a much more anarchic kind of competitive tendering-disorganised, disruptive or perhaps unorganised-and could result in a damaging, fragmented breakdown of services. I am saying not that that is the inevitable result of this legislation but that that is the widespread fear of what it might result in. We therefore have to probe carefully to see how likely it is and what the dangers are.

The Minister tells me that the figure of £156,000 is key. That is the level at which the annual cost of a service requires it to be put out to competitive tender under the procurement process under European rules. If the figure has changed since I last spoke to him then no doubt he will tell me. If a voluntary or community group challenges for a very local service and it costs less than that to run each year, does the council have a procurement process to negotiate simply with that community group for it to take over the running of the pocket park, the local playground or whatever?

On the other hand, if the figure is more than that, the service will have to be put out to competitive tender, in which case the whole world will be able to come in and tender. If that happens, although there is a clause in the Bill that refers to having to stick to contract rules and so on, to what extent can the council not take the lowest tender, or not even take what appears to be the best value-for-money tender, which may also be the lowest tender, and discriminate in favour of a local community group because of the additional advantages that that would have in terms of local people getting involved in running their own

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local services? To what extent is that allowed and to what extent is it not? To what extent is it inevitable that if large corporate bodies put in lowest tenders-we all know about economies of scale-they will take over?

What are the rules that will allow councils simply to say, "Actually, we don't want this to happen, so we will stop the whole process"? In his reply to the previous debate, the Minister referred to the power of stoppage-the first time that I have heard the phrase-that will be set out in regulations. I am not sure that I see where the regulations will come from but no doubt it is in one of these dozens of regulations here.

This is quite a curious part of the Bill. Under the heading "Community right to challenge", Chapter 3 of Part 4 starts off with "Duty to consider expression of interest", but almost every other clause over 24 pages is about dealing with the expression of interest. There is little or nothing in this chapter about how the process of procurement will work. Before the Bill leaves this House, we need to understand what rules the councils are going to operate under when they carry out their procurement processes. Once they have started such a process, on what basis can they stop it? As I read the Bill, it is not clear what the basis is. If it is simply left to councils to start it and then stop it, one can see legal challenges happening further down the line.

All those fundamental questions lie beneath the amendments. I am certainly not against contracting out in a properly planned and controlled way, nor are we as a party. However, we have to remember that the council and elected councillors are legally responsible for providing a lot of these services, and we cannot just hand over not only the operation of them but the ultimate responsibility for them, which will come back to them if things go wrong.

I look forward to what the Minister has to say in response to this. These are fundamental questions, particularly about procurement. We have to get to the bottom of this before the Bill leaves this House.

Lord Patel of Bradford: My Lords, I shall speak to Clause 73 stand part. On the face of it, the heading of the clause, "Provision of advice and assistance", appears to be very welcome. However, I am struggling with the direction of travel here. This is, after all, the Localism Bill whereby we are led to believe that the Secretary of State wishes to roll back the mighty arm of the state, yet here we find a clause that gives an astounding new array of powers for the Secretary of State to interfere, I suggest, in local decision-making.

I shall outline the extent of that interference. Clause 73 at least begins as it intends to go on. First, we are asked to endorse the following:

"The Secretary of State may do anything that the Secretary of State considers appropriate for the purpose of giving advice or assistance to a relevant body".

Now, while I am certain that the Secretary of State has only the best intentions and that he means to provide helpful advice and assistance, I struggle to accept the idea that this may include anything that he considers appropriate. I am also somewhat concerned at the use of the word "assistance". What do we make of this? Exactly what does the Secretary of State have in mind

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for such assistance? Clause 73 goes on to give us an idea, which I again find a little troubling. Assistance may come in the form of,

and, as if this were not enough assistance already, it may also involve,

I am left to wonder what the point is of the previous clauses in the community right to challenge chapter, when the conclusion appears to be that the Secretary of State is going to do it all.

I am not a lawyer, so I will leave it to noble Lords who are to ponder the implications, but I am fairly certain that interference by the Secretary of State in local procurement exercises may well be against competition rules, not to mention the likely effect of this on local governance.

The Secretary of State has not yet finished-there is more in this clause. We go on to learn that the Secretary of State may also do anything that he considers appropriate in the operation of the whole community right to challenge chapter in respect of a body or person that is other than a previously defined relevant body. Once more I am forced to question why the previous sections of the chapter were written and why noble Lords have spent the last few hours discussing such things as what constitutes a relevant body. It seems clear to me that this clause intends the Secretary of State to have the powers to bring into the community right to challenge, at any time or place as he sees fit, any body that he wishes.

The clause goes yet further. The Secretary of State also intends to interfere with finances. If it is the intention of the Secretary of State to provide "financial assistance" to local groups seeking to take up the community right to challenge, why does he not make that assistance available to local authorities that have local knowledge so that they may decide on its use? That would be something practical, and something which I have previously said is lacking from the Bill. However, this does not seem to be his intention. The reason that I am suspicious is that the Secretary of State feels it necessary to include in the definition of bodies to which he can give financial assistance those that are not relevant bodies under the earlier clauses. Can the Minister explain who these bodies might be, and why the Secretary of State needs these new powers?

I say again that this is not localism. The aim of the community right to challenge is to enable local voluntary and community groups, social enterprises, parish councils and local authority employees delivering a service to challenge a local authority by making an expression of interest in running any service for which they are responsible. I do not recall this meaning that the Secretary of State shall attempt to supplant this very local process in any way he considers appropriate, including placing new bodies that are not defined under the Bill into the process. We have already debated the potential limitations and lack of clarity about the current definitions of a relevant body, and I am quite sure that it is the intention of this House that this should not include the private sector.

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I would have thought that the Secretary of State might have learned something from the recent debate over the role of competition in the health service about the risk of inviting the private sector to take over large parts of public services. If not, I am sure that my noble friend Lady Thornton could give him a quick lesson in this area. I have a strong suspicion-maybe wrongly-that this clause may well be a backdoor attempt to bring in such privatisation. Indeed, I believe that this is the same point exercising the minds of the noble Lord, Lord Greaves, and the noble Baroness, Lady Hamwee, whose commendable amendment seeks to restrict these new powers of the Secretary of State so as explicitly to exclude the private sector. However, I do not feel that this clause is one that can be corrected by amendment. The entire clause raises so many questions, and appears to fly in the face of localism and the intentions of the Bill.

It is for this reason that I oppose the question that the clause stand part of the Bill. I hope the Minister will either reassure me tremendously, or support my argument.

Baroness Hamwee: My Lords, I wish to ask one question, which has occurred to me only while listening to the debate-otherwise, it would have been down as an amendment. Does clause 73 extend to the Secretary of State giving directions to a local authority to provide financial assistance in this connection? The Minister can take it as my view that it should not.

Lord Shutt of Greetland: My Lords, Amendment 131D seeks to confirm that bodies which carry out activities for profit cannot be relevant bodies. Amendment 133ZP would prevent bodies which are carrying out profit-making activities from receiving advice and assistance in using the right to challenge.

The definitions of voluntary and community body have been designed to enable a range of civil society organisations to use the right. This supports the Government's commitment to enable these groups to have greater involvement in running public services. This includes social enterprises and co-operatives, where not all profits may be reinvested in their activities or the community provided that their activities are for the benefit of the community. This requirement will ensure that any profits are indirectly focused on their activities. It will also ensure that large, multinational companies and big conglomerates cannot use the right to challenge. I am aware that that is a concern.

No decision has been made yet on the form that any assistance will take, but one would expect it to focus on those who need it most. This is most likely to mean smaller, newer voluntary and community bodies; but it is sensible that we have the powers to provide assistance to any relevant body that might need it. In answer the noble Lord, Lord Greaves, when I referred to the "power of stoppage", that was my own phrase. I think that we have to look at regulations because it is not clear to me yet exactly how a local authority will cope when it encounters the whole business of people taking advantage of the right to challenge-whether it

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can just say "buzz off", or whether, in the regulations, it cannot say "buzz off" unreasonably. I believe that this is something that has to be worked through in regulations. He referred to the figure of £156,000; that is the threshold figure in terms of the Public Contracts Regulations 2006. However, as well as the £156,000 threshold figure, there is a list of services in Part B of Schedule 3 to those regulations which is quite lengthy, to which that figure is not relevant. This includes education, health and so forth. There are a large number of things which would fall outside that.

It is important to understand that there is nothing in the Localism Bill which addresses procurement. Procurement is up to local authorities. Local authorities have worked out how they do that.

6.45 pm

Baroness Thornton: I do not understand, then, why Clause 73(1)(b) talks about,

Lord Shutt of Greetland: That would be the exercise that is carried out by the local authority. It does not say how the authority should procure, it simply acknowledges that there will be a procurement exercise. I understand that these are wide-ranging powers, and I understand the noble Lord expressing his view on that. I think, however, that there are two quick responses-and the noble Baroness, Lady Thornton, will no doubt warm to this theme. It could well be that if employees are expressing an interest, under these clauses, provision could be made-and that may indeed be via a local authority rather than the Secretary of State-to give them help and assistance in forming a community interest company. That sort of advice and assistance, and seed-corn money, might enable such groups of employees to enter into expressions of interest. If they did not have that, they would be unable to.

Baroness Thornton: The noble Lord invites me to comment on this. My comment is that it is not the Secretary of State's job to provide this advice and assistance. It is the local authority's job, or else that of some association which is under its control. It is the Government's job to provide the resources for them to do it. This gives too much power to the Secretary of State.

Lord Shutt of Greetland: The noble Baroness takes words out of my mouth. I did indeed say that that is exactly what could happen. I hope that, in the circumstances, these amendments will not be pressed, and that the clause will be able to stay. As I indicated right at the start, regulations are with us, and we will all need to see that we are happy with them. The noble Lord, Lord Greaves, said that he wanted convincing before the Bill leaves this House. It will be a while yet before it leaves.

Lord Patel of Bradford: Can the Minister give the House an idea of when the draft regulations on this clause will be laid?

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Lord Shutt of Greetland: All I can do is repeat what I said at the beginning. Before we return to this, we shall either have draft regulations, or we will have an indication of where we are going. I cannot do more than that. I suspect that there is some work to be done on this, although some work is being done as we are going on. We have only just got the response to the consultation. Every endeavour will be made, because obviously it will assist their Lordships if this information is available.

Lord Patel of Bradford: I think that the wording we are discussing is almost duplicated in Clause 88, which will be opposed by the noble Lords, Lord Greaves and Lord Tope, so it is worth taking a second look at the extent of these powers. I am not entirely convinced that we have cracked this nut as lots of issues have not been debated fully.

Lord Newton of Braintree: I hope that I may hop in before the noble Lord, Lord Greaves, sums up, because I have been left in a state of confusion-as, I suspect, has the opposition Front Bench. I understand the point that this provision is not intended to let in large, multinational companies. We probably would not want to do that and in any case it seems to me that the number of large, multinational companies that would want to bid for small, local contracts worth less than £150,000 would be rather small. However, I am not clear whether it is the intention to do what this amendment appears to do, which is to ban even a small profit-making organisation. If that is the case, I am not sure that it is justified. If we consider meals on wheels provision, small catering companies provide sandwiches for local businesses and possibly meals for local old people's welfare clubs. I do not see why they should be barred simply because they are making a profit, if they can provide a better value service than the organisations we are talking about here. I should like to know what the answer is to that.

Lord Shutt of Greetland: The quick response is that the community has the right to challenge. It is in the Bill-although I cannot turn to the relevant clause quickly-and was certainly in the consultation document, that there may well be circumstances where the community goes into partnership. Going back to meals on wheels, you could have the local community centre going into partnership with the local baker. Those sorts of things could happen, but the community has the right to challenge, not local businesses or conglomerates.

Lord Newton of Braintree: Can I be absolutely clear about that? I am sorry; I am becoming as talkative as the noble Baroness. I do not apologise for that as I think she is doing rather well. If a profit-making company were involved with a community body, would that be all right, even though it was making a profit?

Lord Shutt of Greetland: My Lords, it is my understanding that the community body could have as a partner another body that happened to be a profit-making body.

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Lord Newton of Braintree: I am very encouraged by that.

Baroness Hamwee: My Lords, I am relieved to hear the Minister say that, as the noble Lord, Lord Newton, seemed to be referring to competitive tendering, which we have experienced in different forms over the years. I want to pick up on a point that my noble friend made earlier. This is an observation rather than a question. The Minister said that the assistance would be given to whichever organisations needed it. I hope that the regulations will be written with a view to benefiting the community rather than the provider of the service. Those two things may be the same in the long run, but the benefit to the community should be the lens, as it were, through which one looks at the arrangements.

Lord Shutt of Greetland: My Lords, I understand the point that the noble Baroness is making. I will bear it in mind and take it back to the department.

Lord Greaves: My Lords, I thought that this group might lead to an interesting discussion. We have had an interesting discussion, which I do not think can end today. I have the sense that of all the groups we have discussed so far, this is the one on which my noble friend the Minister has batted on something of a sticky wicket. However, like a good Yorkshireman, he has rightly batted with a straight bat. There have been a few Bradfordians in the Committee today. The noble Baroness, Lady Eaton, has just gone but there are still a few of us left. The Minister does not quite qualify as a Bradfordian by a couple of miles, but he is still using a straight bat.

There are two fundamental issues in this group. One was raised by the noble Lord, Lord Patel of Bradford. The question of how this money is going to be handed out, to whom and what criteria will apply is very important. As we are all Bradfordians, I shall talk about Leeds. If there is an agreement between Leeds council and a big community-based group which would like to take over a lot of community-based services, and that happens, it seems to me very appropriate for government money to be used to assist that process. The process will proceed on the basis of co-operation and people agreeing that a particular group requires help and assistance to build up its capacity. However, if the money is handed out to large national organisations, whether they be charities or other bodies, in order to make speculative challenges or to come in after the challenge phase as part of the procurement for large-scale services such as children's services or adult care services in large authorities, that would seem to me a less desirable use of the money. If it is to be used in relatively small or medium-sized amounts to bolster local community-based groups, that seems to me a good use of government money. However, I have problems with this provision being part and parcel of large national organisations taking over local services. That is the kind of thing that we shall have to probe further.

However, the fundamental issue in my amendments has not been confronted. My noble friend the Minister stated clearly that large commercial organisations,

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multinationals or others, will not be able to take part in the community right to challenge and will not be able to make expressions of interest. We all understand that but the problem arises at a later stage if it is a challenge for a service that costs £1 million a year to run and therefore has to be put out to a tendering process. As far as I can see, that would be very like the competitive tendering processes which used to be compulsory, and which some councils still carry out in order to get the best value because that is the way they want to do it. If that is to happen on a compulsory basis as a result of what was initially a community right to challenge, a problem will arise. Procurement does not appear in the Bill. I have been looking at where it might appear. Clause 72 is headed "Supplementary". Clause 72(1) states:

"The Secretary of State may by regulations make further provision about the consideration by a relevant authority of an expression of interest submitted by a relevant body".

That seems to allow the Secretary of State to make any regulations he wants about the whole procurement process. Clause 72(2) states that a relevant authority must,

which, as we know, comprises instructions and does not even come to this place for us to nod it through. There are real issues here about the procurement process. If it is to be not in the Bill but in the regulations, the procurement regulations-if there are to be any-have to be among the regulations that the Minister manages to dredge out of the department before we get to Report. On that basis, I beg leave to withdraw the amendment.

Amendment 131D withdrawn.

Amendments 131DA to 131H not moved.

7 pm

Amendment 131J

Moved by Lord Greaves

131J: Clause 68, page 58, line 23, at end insert-

"regarding services provided on behalf of more than one authority jointly"

Lord Greaves: This amendment is the first in a group of four amendments. In moving it, I will also speak to the three others. It is a miscellaneous group of different things that I put together to avoid getting leant on by the Whips. I think I can deal with these fairly quickly.

Amendment 131J is about how to deal with services provided by more than one authority jointly. The two adjoining authorities might be a district and a county in a two-tier system. I have a number of examples of that; I do not think I need to read them all out, but they include leisure facilities. Amendment 131K is about how the Government are going to review what is going on. This is an all new, untried and untested system that, we assume, will be brought into operation across the whole country at the same time, and the

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amendment is about how the Government are going to have a continuous review of what is going on, and continuous consultation with local authorities on how it is happening.

Amendment 133ZK provides more regulations and restrictions. It is about the rejection of an expression of interest. It seems to me that there are two stages at which things can be rejected. One stage is where the expression of interest is made and the authority can simply say, "We are rejecting the expression of interest and are going no further". At the moment, Clause 70(8) says:

"The relevant authority may reject the expression of interest only on one or more grounds specified by the Secretary of State by regulations."

That is crucial. Again, it would help if we could know what those regulations are; they ought to be in the Bill. The second stage is procurement, which we have been talking about.

Amendment 133ZL is a provision by which the relevant authority, the council, can carry on as before with the exercise, even if the relevant body-the community body or the parish council-withdraws its expression of interest or refuses to agree to modify the expression of interest. It is an indication yet again that once the process has started, it will continue and be very difficult to stop. That is, I think, of concern to some of us. We can see a situation in which a community organisation as defined is persuaded to put in its expression of interest. It is not really interested at all, but it gets the process going and is in league with one of the big boys, a big commercial organisation, which, if the figure is over £156,000, will then come in and try to clean up. There are real concerns that there are loopholes here that need looking at before the system is unleashed. I beg to move.

Lord Shutt of Greetland: Amendment 133ZK would remove the Secretary of State's power to specify in regulations the grounds for rejecting an expression of interest. We have taken this power to ensure that power really is pushed down into the hands of communities. The majority of relevant authorities will of course act within the spirit of the right, but the power to specify the grounds on which an expression of interest could be rejected prevents a recalcitrant authority from rejecting it out of hand and defeating the purpose of the right. I accept that, as my noble friend indicates, we are back to regulations.

Amendment 131J would give a Secretary of State a power to make provision in relation to services that are provided jointly by authorities in regulations. We would expect relevant authorities to take a common-sense approach to services that are provided jointly, and to agree together a period during which expressions of interest could be submitted and arrangements made for considering them and for carrying out any subsequent procurement exercise. However, provision in relation to jointly provided services can already be made if necessary under the powers in Clause 72.

Amendment 131K would require the Secretary of State to consult representatives of relevant authorities when making regulations of guidance, and to have regard to their views. We have recently concluded a consultation, with all those with an interest in the

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right, on our proposals to use the various powers that we have taken. We will consider the need for consultation on future changes.

Amendment 133ZL would remove the authority under this chapter for a relevant authority to undertake a procurement exercise when an expression of interest has been withdrawn or a relevant body does not agree to modifications to it proposed by a relevant authority, meaning that it has to be rejected rather than accepted. An authority might wish to carry out a procurement exercise in these situations if, for example, it is attractive to the type of service delivery set out in the expression of interest and if the authority wants to initiate a procurement exercise anyway, or if services are currently contracted out and the company needs to undertake a procurement exercise in order to maintain service continuity. Clause 71(7) provides clarity in stating that a relevant authority may determine whether to carry out a procurement exercise where an expression of interest has been withdrawn. I hope that that will persuade my noble friend to withdraw his amendment.

Lord Greaves: My lords, I will withdraw it in a minute. However, I will, as always, read carefully what my noble friend has said and decide whether any of the amendments in the group need further pursuit.

The more I hear this debate, the more I am concerned about the word "challenge". I think "challenge" is wrong because it is an adversarial word. If any of these arrangements are going to work, there will have to be a willingness on both sides-that is to say, on the part of councils and the organisations that are making a bid to run services-to make them work. There has to be co-operation. If that is not there, frankly the arrangements are not going to work very successfully. What is needed more than anything else in many places is a culture change, which can best be created by people exhorting, explaining, being enthusiastic and persuading, rather than having hundreds of thousands of words telling people in detail what to do. If people do not like what they are doing, they will do it grumpily, and it will not work very well.

The only question I will ask my noble friend the Minister concerns all this talk of recalcitrant authorities. What estimate have the Government made of the number of local authorities which they expect to be recalcitrant in relation to this particular part of the Bill?

Lord Shutt of Greetland: I have no idea whether there is any estimate. When starting afresh with a new proposal, one of the things I think to myself is, "Could local government have done this anyway? Could it have said, 'It could be that all sorts of bodies could do things rather better than us. Can we find ways in which we can give these opportunities?'". I am doubtful that I have heard the answer. Therefore, because this has never been done, there might be a perception that this is the sort of thing that local government would not get up to on its own. The authorities could be recalcitrant in those circumstances, but in general I do not know, and I suspect that the calculation is not there because I do not see how you could get that calculation. However, it is worth looking at what has happened to date.

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Lord Greaves: The Minister is tempting me to go into a whole new area, which I will resist, except simply to say that there is a culture in local government nowadays that is very different from what it was 30 or 40 years ago; you do not do anything at all, on anything and in any way, unless you have permission from the Government or the regional office, which has now been abolished, or someone else up there, to do it. People are scared to death of doing things because they have lawyers who tell them that not only can they not find the power in the legislation; they cannot find the instruction in the legislation and all the stuff that tells them exactly how to do it. That is the problem in local government now; it is in detailed bureaucratic thrall to central government, and we are about to pass a Bill that increases that.

Having made that counterpoint to what my noble friend said-which might have some justification but is, I think, part and parcel of the fact that people in Whitehall do not believe that local government can ever be trusted to do anything useful or sensible unless they are told how to do it as if they were in kindergarten-I beg leave to withdraw the amendment.

Amendment 131J withdrawn.

Amendment 131K not moved.

Clause 68 agreed.

Amendment 132 not moved.

Amendment 133

Moved by Lord Lucas

133: After Clause 68, insert the following new Clause-

"Duty to consider requests

(1) A relevant authority must consider a request in accordance with this Chapter if-

(a) it is submitted to an authority by a parish or town council, and

(b) it is made in writing and complies with such other requirements for requests as the Secretary of State may specify by regulations.

(2) In this Chapter "request" means a request to a relevant authority that it should provide a service or perform a function (being a service or function that it already provides or performs, or is entitled to provide or perform) in a specified manner.

(3) A relevant authority in receipt of such a request shall accede to it unless doing so would-

(a) result in net additional expenditure or net reduced revenue, or

(b) adversely affect that authority's wider interests or policies.

(4) In reaching a conclusion under subsection (3)(a), the relevant authority shall take into account all consequent changes in expenditure or income, including any amounts that the parish council is prepared to pay the authority, except that it may not take into account any net reduction in revenue resulting from the enforcement of civil penalties."

Lord Lucas: My Lords, the amendment gives a town or parish council the power to put in a request to its superior council, whether that is the district, county or city council, to say, "We wish you to provide your

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services in a particular way", or, "We wish you to exercise your functions in a particular way", and for it to be imperative on the superior council that it accede to the request unless doing so would cost it money or interfere with its wider interests.

There are three principal themes behind the amendment, all of which we will come to in my later amendments. First, there is much to be said for producing something between the current status and some of the cathartic remedies offered in the Bill-in this case, the community right to challenge. It is a serious prospect to ask a small Hampshire town to take on rubbish collection, parking control or any other services that are provided on a large scale by the local authority, and probably belong at that scale, but it is quite reasonable for it to say to the local authority, "When the dustmen come round and spill a bag, we would like them to pick it up rather than leaving the contents on the ground, as your current contractor does", or, "Please can you desist from parking control on Wednesdays, when we like to allow everyone free rein to get into the shops in the town centre". To my mind, such requests should be acceded to, but we will never do it through the community right to challenge.

I propose this as a more gradual way, an in-between solution. We are giving such power and influence to town and parish councils that they will over the next decade or so grow much stronger than they are at the moment. There are many other things in which people have an interest locally-not just planning but the whole way in which their local services are provided-and it seems unreasonable that the only way they should have to influence those things is in trying to put together a consortium to take over from the superior council the whole provision of those services. If they can find a solid way to influence the services, if they can make a definite promise to their electorate that they will go to the superior council to ask for that to be done and to have every indication that it will, that will contribute to building strength at the bottom end of the council structure. That will produce a much more robust council when it comes to taking all the decisions that will be asked of it under neighbourhood planning. In strengthening communities and the basis for neighbourhood planning, the amendment has a role.

The third role concerns cities. In neighbourhood planning, we are producing a structure that will work very well in the suburbs and the countryside, where there is a great deal of value to be extracted from the planning process and where communities have a close interest in the way that development takes place. That is the case not only in the inner cities but in places such as in Battersea in London, where I lodge. There is really no interest in controlling development because it is a matter of minutiae and individual planning decisions. The place is built up, except for Clapham Common, and no one can touch that. There are no big decisions to be taken in our neighbourhood; there is no incentive to get together as a community under the provisions of the Bill. However, if the neighbourhood was to be granted any sort of control over the enforcement of parking, 50 per cent of households would come out to vote tomorrow.

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I want the capabilities of neighbourhoods under the Bill extended to include the sort of things that people will care about in cities. In places such as Battersea, that is parking, music in pubs and licensing, and other such local authority functions. In the more impoverished parts of the inner city, it is likely to be education and provision for youth. Those are the sort of things that a community will care enough about to want to influence and that will provide the motivation for the creation of the sort of active neighbourhoods that the Bill is intended to achieve.

7.15 pm

From all those points of view, the amendment is worth while. It is inevitable in the way in which I have structured it that the town or parish council, in putting forward its proposals, will have to produce savings for the superior council. Otherwise, the thing just will not work. It therefore builds in an element of saving and cost-cutting, which I hope will be an additional attraction to the Government. I beg to move.

Lord Newton of Braintree: Prompted again by what I have heard-I hope that this is not out of order, because it raises a point about the clause with which we have just finished-this is the first reference I have seen to town councils as distinct from parish councils. Town councils are not specified as relevant bodies in the previous clause; they are included in the new clause. What is the position of town councils under the Bill?

Lord Greaves: My Lords, legally, town councils are parish councils. I think that is the answer the Minister will give. It is true, anyway. The noble Earl, Lord Lytton, is poised to come in again. A town council is a parish council that has passed a resolution under about three lines of the Local Government Act 1972 to call itself a town council. It can have a town mayor if it wishes, but it does not have to. I think that is all there is to say about it, but the noble Earl might have other things to say.

I strongly support the amendment moved by the noble Lord, Lord Lucas. It is ridiculous if a parish council can put in a lot of time and effort to consider taking over local services, has to do it through the expression of interest procedure and can then be outbid by other people. There is no sense in that. The Minister might say that it is unnecessary because if the district, unitary, county or whatever council agrees to it, it can happen anyway. My experience is of a borough council that tries to offload things to the parishes such as public conveniences when the parishes do not want to take them on, but that is a different matter. Throughout local government, there is a culture of conservatism and fear of taking on and doing more things. Changing that culture is the most important thing that we have to do. The amendment would be a very useful addition to the Bill.

The Earl of Lytton: My Lords, there is nothing like the words "parish council" to get me out of my seat. Noble Lords will know of my interest in parish and town councils. To answer the first question, the noble Lord, Lord Greaves, is right: fundamentally, structurally, parish and town councils are effectively synonymous.

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The differences are in the way in which they operate, but structurally in their clerks, membership and rules of engagement with which they have to comply, you can more or less say that the term is synonymous one with the other, except that one happens to apply to a town. It is an area where we have great difficulty with what we might call the family of parish and town councils, because town councils such as Weston-super-Mare have huge budgets and are on a principal authority scale, whereas many tiny rural parishes, although they may have quality parish council status, are extremely small. That lack of consistency makes it very difficult to deal with parishes as a cohesive whole.

I say straight away that I have not conferred with the noble Lord, Lord Lucas. I am very pleased that he has moved this amendment. There are some extremely good examples of where principal authorities have felt that they had the confidence to pass on to a parish or town council a function that they knew could be dealt with readily, cost-effectively and which was well within the capacity of the town or parish council concerned. But I am bound to say that nationally, the track record of passing things down to the lower tier has been fairly poor, taking things as a whole. That is one of the issues that lies behind localism. We need to get that straight.

What the noble Lord, Lord Lucas, suggested was a sort of localism-light in the sense of trying to avoid a bureaucratic and procedurally-driven process. On the whole I would welcome that as well. At Second Reading, I said that these things have to be rendered down to a localism scale-a community scale, not based on the sort of procedures and checks and balances that perhaps apply to the much more senior aspects that must be rightly dealt with by principal authorities.

I give one example. In my own parish council in Shipley in West Sussex, which is one of the largest geographically but has one of the smallest populations in the whole of West Sussex, a parish councillor commented some time ago on the problem the parish council was having with verges. People were encroaching on road-side verges by extending their gardens, filling-in road-side ditches, and doing all sorts of things that might include impairing forward visibility along the road. They were planting things, and so on and so forth. The verges, in so far as they were part of the highway, would have been vested in the highway authority, which in that instance is the county council. We know that all county councils are subject to cost constraints, and certainly West Sussex where I live is no stranger to that and has introduced some commendable measures to try to square the circle, so to speak. But it cannot be in all places at all times and it cannot police those verges. Such things should be preserved in the generality of the public interest-they are assets of community value in many cases but they are often orphan pieces of land. They may historically have been part of an enclosure plan or something like that which attached them to a particular estate or riparian owner, but over time, and with the process of land registration, that link has been lost. The boundary may have been drawn to an ordnance survey boundary that was set back from the hard edge of the road, so you end up with orphan strips.

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Parish and town councils in some instances-I am not saying in every instance as they may not have the facility to do it-would like to get hold of those to manage them properly and make sure, in particular, that they are not filched by neighbouring householders or have things dumped on them where nobody seems to be responsible. They may get driven over because it happens to be a convenient place to pull off for dog walking, as happens in my part of the parish. That is just one example of something that could be of benefit.

In general, I support the amendment but there is a caveat. The words,

is a proviso that the noble Lord wants to insert under subsection (3)(a). There is a problem with activities, services and things being passed to parish councils shorn of any resource to deal with it. That is the classic thing that we refer to in parish and town council circles as double taxation. The parish then has to raise by precept a means of funding that expenditure because the principal authority has said, "Yes, you can have this but there is no funding to go with it". I therefore enter a caveat on that. On subsection (4), I would flag up that it might be extremely difficult to verify, knowing what little I know about local government finance, to deal with the matters that the noble Lord is trying to cover there. I well understand his reasons for putting them in, but I do not know how you would prove it. However, in general I support the direction of travel of the amendment.

Lord Newton of Braintree: My Lords, I knew it was a mistake to mix with these experts. I had better apologise for not understanding the point about parish and town councils and indeed for stirring up the noble Earl, Lord Lytton, with his well-informed speech.

I want to make two observations, one of which builds on that. Town councils, in terms of their size and perception of themselves, can be, as in his example of Weston-super-Mare, completely different animals from most of the parish councils that I know. My constituency contained two main towns-the towns have not changed but the constituencies have-one of which was the main town, Braintree, and the other was Witham, which was almost the same size, with 30,000 people in those days and possibly more now, which had a town council. If I had tried telling them that it was just a jumped-up parish council, I would have expected to lose the odd vote at the following election. The Government appear to be saying that all these bodies, which are not insignificant, are just jumped-up parish councils. I do not think that that is very sensible. Whatever parliamentary draftsmen may say, it might be sensible to incorporate town councils in the wording of the Bill. I leave that thought with my noble friends.

Beyond that, there was one other thing that I wanted to say. I agree with the noble Lord, Lord Greaves, that district and borough councils are not always great at wanting to devolve downwards. Presumably one of the objects here is that they might be encouraged to do that in appropriate circumstances. The only thing I ask, having endlessly declared that my wife is a district councillor, is that nobody tells her what I have said.

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Lord McKenzie of Luton: I wonder whether the noble Lord can help me on a point which is prompted by this proposition. If you are switching expenditure from one authority to another and precepting increasing on the one hand and reducing on the other, how does that play as far as the calculations for council tax referenda are concerned?

Lord Shutt of Greetland: My Lords, I need real notice of that last point as it is a bit technical. I have not heard of parish council tax capping. I have never heard of it and have a feeling that it is not there. That is the simple response to that.

It may be that having a little amendment putting parish or town in the Bill could be helpful so that nobody is in any doubt that parish means parish and town. I understand and accept that. Of course, there is no symmetry in the sense of the sizes of parishes or towns. For example, I was in the former Elland urban district council area, which never got parish council status, yet Todmorden, which is a borough council, did. There is no symmetry, but nevertheless this House has a wealth of experience of people involved in parish and town councils, so it is not surprising that such an amendment creates interest.

Through the legislation as a whole, we are enhancing the role of parish councils. They will be able to exercise the general power of competence when they meet certain conditions. They will be able to nominate assets of community value and we propose that they can express their intention to bid for an asset, triggering the full moratorium or window of opportunity. They will be able to initiate the preparation of neighbourhood plans and we will also be carefully considering the arrangements for parish polls as part of our proposals for local referendums.

However, we believe that Amendment 133 is a step too far and, in addition, is unnecessary and risks cutting across the intentions of the community right to challenge. We already expect local authorities to engage with their communities on services, including with parish councils, as part of the commissioning and engagement process. Where there are representations, we would expect these to be considered and taken seriously. If representations are made and concern over service delivery remains, parish councils are already named as relevant bodies under the community right to challenge. They would be able to issue a challenge to deliver the service if they believed they could do so differently or better. Relevant authorities will have carefully to consider these challenges.

7.30 pm

Lord Greaves: Will my noble friend confirm that it will still be possible for district councils or any principal council to come to an arrangement voluntarily with their parish councils to transfer service delivery to the parish council outside the provisions of the community right to challenge?

Lord Shutt of Greetland: My Lords, I believe that is the case. I do not see that that should be disturbed by anything that the Bill is doing. The noble Lord talked about it the other way round, saying that sometimes

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district councils try to offload and the parish says, "No, we would sooner you kept doing this". I do not see that there is any reason why that cannot be done under present arrangements. The right to challenge is a different principle. There is a risk that this amendment could catch relevant authorities in an endless and burdensome cycle of considering requests and counter-requests from different parish councils in their area that have different ideas and preferences as to how services should be run.

Finally, the amendment would risk cutting across the community right to challenge as a whole. Requests from parish councils to provide services differently, which might include the service being provided by the parish council or by another organisation, would potentially override expressions of interest from other relevant bodies. I hope that in the circumstances the noble Lord will feel able to withdraw his amendment.

Lord Lucas: I thank my noble friend for that reply but not for the content of it. We will come to these matters again. I understand what he is saying, but I think that the Government are falling short of the ambitions that they should have in his saying that. We are taking a step towards making parish councils serious bodies for which serious people in the community stand and expect to do serious things. To put them in a position where the only thing that they can promise their electorate is to take a particular attitude on planning is seriously missing a trick. There are many other things that good people in a community should have an influence over. They should feel that they can go to their electorate and say, "I will do this for you", and not just, "I will go cap in hand to the district council" but "I will make a request that the district council has to consider", or some equivalent. We ought to be looking at ways of empowering parish councils and particularly town councils in relation to the districts and the counties that sit above them. I am sorry that the Government feel that they have gone far enough in this legislation. I hope that when we get experience of parish councils and town councils being what they can be under this legislation, we will take a step forward.

It is not so much the problems of the noble Earl, Lord Lytton, that I am thinking about. His sort of parish under this Bill will become rich in opportunities to raise funds as a result of development, which will enable it to do whatever it wants with its verges. It really will not be a problem for them, but the Bill is a serious problem for city parishes, first of all because there are no parishes. If you look at my bit of Battersea, there are no lines drawn other than the ward boundaries, and they change every time the Electoral Commission has hiccups. There is no community on the ground, and Battersea is a relatively homogenous corner of London.

There are bits of London where you have an enormous mix of different communities with strong ties within them and very few ties between them and to the locality. To build a community there which can take advantage of the facilities in this Bill to influence planning requires that the organisations we create can have influence beyond mere planning. Most of the lives of people in the community are dictated by the ways in which the local authority chooses to spend

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money on them, to police them and to require things of them. If they want to do something as simple as having a real influence over the provision made for their children, particularly in terms of early years, youth clubs, youth provision and help into work, all of which are substantial programmes going through Government and through local authorities, they have no right to do so. No one can promise that under this Bill the neighbourhood will have a real influence on those sorts of things. Unless we offer communities that ability, we will never create the communities to take advantage of this Bill. This will be a Bill that does not happen in the cities because no one ever gets going because no one can create the consensus because there are no powers on offer that are relevant to the local communities.

I think that is a serious problem with the Bill and one that I hope the Government will think about. I hope that the Opposition will think about it, too, because I associate the Opposition with having some interest in cities from time to time. I was particularly disappointed by the noble Lord's lack of interest in this amendment. I hope I manage to interest him in some of my later ones. It seems sad to me that the Opposition are just interested in the rural vote and have no care left for cities. Perhaps that is being left to the Liberal Democrats, for whose support I am grateful. I beg leave to withdraw the amendment for now.

Amendment 133 withdrawn.

House resumed. Committee to begin again not before 8.36 pm.

Corporate Governance and Accountability

Question for Short Debate

7.37 pm

Asked by Lord Harrison

Lord Harrison: My Lords, the UK corporate governance framework is built on the principle that shareholders exercise oversight of company boards. The publication last year of the UK stewardship code marked a recognition that this ownership role needed to be taken more seriously by the institutional investment community. Indeed, I believe the code should include oversight of environmental, social and governance issues, not simply because it is the right thing to do or because these issues have a material impact on company returns, but also because it translates into a competitive advantage for business. Sadly, shareholder scrutiny does not always work, as in the case of the BP oil spill due to lax safety standards. Two months before that disaster, a shareholder resolution on tar sands-a similar method of oil extraction to deep-water drilling-which was put forward to increase disclosure of the risk involved, was rejected by 90 per cent of shareholders. As the noble Lord, Lord Freud, commented in a recent debate,

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I later asked a question of the noble Lord, Lord Freud, along similar lines. He indicated that the Government had no ideas for new regulations in the current climate but they are open to creative ways of improving the quality of disclosure. So I ask the Minister: are the Government continuing to explore non-regulatory ways to encourage better reporting by pension funds, and what assessment, if any, have the Government made of the adequacy of the reporting at present? We need to improve matters.

The UK stewardship code encourages fund managers to disclose their voting records and the Government have confirmed that it is important that all institutional investors disclose their voting. Voting and engagement on social and environmental issues is an important part of an investor's toolkit for managing risk that could affect savers and yet, after years of voluntary codes, only 64 per cent of fund managers and 21 per cent of pension schemes publicly disclose their voting standards. The Government have reserve powers to make voting disclosure mandatory. Are they thinking about it and under what circumstances might they contemplate it? Are they open to ideas of improving the quality of pension funds' disclosures on the management of environmental and social risks? Perhaps the Minister could tell us.

Another, besetting problem is the short-term approach to these matters. As Paul Abberley, CEO of Aviva Investors, recently put it:

"If you are investing in a company with a long-term time horizon, it very much matters to know about sustainability issues, but if you are taking a time horizon of an average holding of six weeks, you might take the view that there may be a time bomb ticking but it is unlikely to go off in my holding period".

I am very pleased that Vince Cable, the Secretary of State, has announced a review of economic short-termism and published a call for evidence on a long-term focus for corporate Britain. In addition, he has appointed Professor John Kay to oversee that with questions such as how best to ensure that the timescales over which companies and fund managers operate match the interests of clients and beneficiaries. Equally, how do you establish the most effective means of boosting transparency for clients, underlying beneficiaries and companies themselves?

Another worry is the misinterpretation of the fiduciary duty. The FairPensions report, Protecting Our Best Interests: Rediscovering Fiduciary Obligation-I am pleased to acknowledge the help from FairPensions for this debate-was published in March 2011 and received a good hearing from Ministers Ed Davey and Steve Webb. I wonder whether the Government will respond to this, to encompass and clarify. Howard Pearce of the Environment Agency pension fund argues that,

However, fiduciary duties should demand an enlightened approach to social and environmental issues, but we all know that too often they are invoked to justify the reverse. Pension fund members are told that their fund cannot be concerned with stopping climate change because it has a fiduciary duty to maximise returns. On closer analysis, that seems daft.

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I am a great supporter of narrative reporting. I think it is an improvement on what we have had before in company reports. Nevertheless, we have problems relating to unreliable information. Many investors say that the lack of verification makes it difficult for them to rely on narrative reports, which can be misleading or present a rose-tinted view of the world. The OFR included an enhanced audit, requiring a higher standard of verification than is currently the regime. Sometimes it is up against incomplete information. Many companies focus on peripheral corporate citizenship activities undertaken during the year, such as volunteering-I am wholly in favour of volunteering-rather than on key social and environmental risks to their core business such as water, security and scarcity. No official guidance has been published on what constitutes an adequate report. Perhaps the Minister can comment on that.

A third problem is inadequate enforcement. The regulator has judged that two-thirds of annual reports fall short of legal requirements in relation to principal risk, yet in 2008-09 it did not take enforcement action against a single company. The regulator is not resourced to take active enforcement action and generally responds only to complaints from investors and NGOs. In the light of that, I ask the Minister whether the Government can confirm that they still intend to bring forward proposals specifically to drive up the quality of social and environmental reporting, as indicated in the coalition agreement. Do the Government accept that better reporting will achieve their objective only if investors have confidence in it? Do they therefore agree that any new reporting regime must contain improved mechanisms for guaranteeing the reliability of information, whether through enhanced audit or more robust enforcement? I declare an interest as the vice-chairman of the All-Party Group on Corporate Governance.

In conclusion, I ask the Minister whether she can put the matter in this frame. Sometimes we worry about the introduction of legislation but, to my mind, and in my assessment of it, we have to create a view that consideration for environmental and social and corporate governance is not a chore but a cheerleader for a better approach to what a company is doing. It can enhance its competitiveness within the market if it complies not only in a tick-box way, but with verve, inspiration and interest. I ask the Minister whether, when they think about it deeply, her Government are capable of leading the charge of encouraging companies to take this more positive attitude, which I think will carry with it the appropriate approach to something which is very important to investors, to shareholders and to pension fund holders for the future. I am very grateful to all those who are to contribute to this debate. I look forward to the Minister's reply.

Baroness Northover: I remind noble Lords that this is a time-limited debate. When the clock shows "3", noble Lords will have had their time.

7.47 pm

Baroness Bottomley of Nettlestone: My Lords, the House is grateful to the noble Lord for identifying a subject that is of such concern that we all wish that

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this had been an all-day debate rather than just an hour's debate. I share his view that, for all the stakeholders in the debate, the institutional community is not sufficiently well engaged currently and the stewardship code offers a serious opportunity.

The fact is that we in the UK should be proud that UK companies have been at the forefront of the process. A large majority of major UK firms publish high-quality social and environmental information on an annual basis. Many produce stand-alone reports dealing with financial and social performance. Frankly, many of them are too large, too lengthy, too detailed and sometimes irrelevant. Those of us who have been Ministers for a certain time know that the way to silence Ministers is to bombard them with paper, and a corporate report lasting 500 pages is a way of befuddling rather than informing.

Companies see the importance of good corporate ethics and strategy and of reporting properly and fully about the full nature of their activities. I agree with the noble Lord that volunteering is not the same as human rights, female empowerment and avoiding child labour. We already go further in non-financial disclosures than most other EU members. I am concerned about further stringent regulations that might impose a significant administrative burden on firms without a corresponding gain in transparency.

I declare an interest as I am on the UK advisory committee of the International Chamber of Commerce. We have drawn attention to the fact that allowing a certain degree of discretion in non-financial reporting enhances transparency by allowing companies to focus on issues of more relevance and materiality to their business operations. By contrast, the tick-box approach, which I think many of us would like to avoid, would produce a sea of data and information, at considerable cost to UK plcs, that would be impenetrable to all but the most persistent reader. I think the CBI has similar views.

It is understandable that there is a desire for greater clarity. Since the Companies Act 2006, on which I made my maiden speech in this House, we have seen great development. My honourable friend's department, BIS, has consulted on narrative reporting. We are fortunate to have her as our Minister because she had a significant commercial business career and was also chair of the National Consumer Council, so she can balance all the interests involved. Perhaps she will let us know what the Government are doing to improve the quality of narrative reports to ensure improved disclosures on the environmental and social impact of corporate activities.

Above all, I want to emphasise that the ability of global business to be a force for good, for female empowerment, for sustainability and for anticorruption in many parts of the world, should not be underestimated. As we look for modifications, we should remember the opportunities that are there.

7.50 pm

Lord Haskel: My Lords, my noble friend Lord Harrison outlined the benefits of good corporate governance and reporting. Do they increase profits, the rate of return or shareholder value? I do not think that anybody

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knows. Therefore, strong forces oppose these activities and see them as a waste of money that distracts management from dealing with competition. Because one cannot show them as assets on balance sheets, they have no effect on shareholder value. These issues change with fashion. They are unpredictable and have little impact on the short-term horizon of many managers.

A good metaphor for these conflicting views is the way in which we manage our forests. The Minister may find the subject of forests painful, but the metaphor is not mine: it came from Mark Goyder, the founder of Tomorrow's Company. We can cut down trees and harvest wood for an immediate cash benefit; then we are left with barren land. Alternatively, we can nurture the forest, plant for the future, take out the dead wood and let new plants and wildlife thrive in the forest, and thereby open up new horizons. Many of us would like to know which companies are good at forestry so that we can deal with them, work in them or invest our savings or pension funds in them.

Many of us like to drink Fairtrade tea and coffee because we know that everybody in the value chain has had a square deal, or we may look for the Carbon Trust Standard mark that tells us that an organisation has tackled its emissions. Branding enables us to make this choice. Helpfully, as my noble friend reminded us, Tomorrow's Company has produced a stewardship code that incorporates many things that we are debating this evening. Will the Government support and facilitate a branding exercise to enable us to recognise the good companies that play such an important social and environmental role in our economy?

7.53 pm

Lord Newby: I thank the noble Lord, Lord Harrison, for introducing the debate. I declare an interest as an adviser to companies on issues of corporate governance and responsibility. There is no doubt that the past decade has seen a sea change in attitudes to social and environmental accountancy, with both voluntary codes such as that of the Global Reporting Initiative, which has been widely taken up across the world, and statutory provisions such as the Companies Act 2006, which has already been referred to and which has required companies in the UK for the first time to report on their social and environmental impacts.

The previous Government planned to go slightly further and introduce a full operating and financial review, before Gordon Brown got cold feet at the last minute. The principal difference between an OFR and what we have under the Companies Act is the requirement for some sort of audit. While I agree with the noble Baroness, Lady Bottomley, about wanting to avoid a pure tick-box approach, at present the quality of reporting on social and environmental issues is extremely mixed. Only 9 per cent of companies that Deloitte surveyed reported on their carbon emissions in line with Defra guidelines. Reporting by companies of community investment is both extremely difficult and patchy. Requiring an audit would improve standards. Under the Climate Change Act, the Government have the potential to make carbon reporting by companies mandatory. Does the Minister think that the time has come for that provision to be brought into effect?

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Of course, reporting by companies is only part of accountability. The other part, referred to by a number of noble Lords, is the accountability of those who invest in companies. For many years, investors have been remarkably uninterested in social and environmental performance. This is beginning to change because people can see, not least in relation to climate change, that how companies relate to the environment will have a material effect on their long-term sustainability, particularly in some of the extractive industries. It will also be logical for pension funds, because of the long-term implication of companies' environmental and social impacts, to take account of those factors in their investment decisions. However, as we have already heard, there are serious concerns about whether they can do that legally, given their fiduciary duties. Do the Government believe that a review of that issue is now appropriate?

7.56 pm

Baroness Young of Hornsey: My Lords, I, too, thank the noble Lord, Lord Harrison, for securing this debate. I will declare my interests. I work with various organisations concerned with ethical and sustainable fashion, including Made-By, the Centre for Sustainable Fashion and Cotton Made in Africa. I am also a patron of Anti-Slavery International.

Many of us balk at the idea of introducing more legislation and complex regulation, especially when some businesses are taking the initiative. For example, the Responsible Sourcing Network has created a pledge for US and European companies publicly to state their opposition to the use of forced child labour in the harvesting of Uzbeki cotton and to refuse to use it in their products. There must also be firm action from the EU, and from the Governments and importers in those countries that trade with Uzbekistan.

Self-regulation and voluntary measures on their own are not always enough to secure the necessary support for the people and environments that are most vulnerable to exploitation. Reacting to stakeholder demands for greater transparency and responsibility, Governments in Europe and the US are legislating on corporate governance and accountability. In 2008, Denmark adopted an amendment to the Danish Financial Statements Act requiring large businesses and listed and state-owned companies to account in their annual reports for their work on CSR. Spain has made a similar move with the Sustainable Economy Act, which came into force in March 2011.

Where do we need to be? We should aim high. Sir Geoffrey Chandler, founder of Amnesty International's business group and a former director of Shell and of the National Economic Development Office, argued that all businesses should be required to ensure that their operations and supply chains comply with the Universal Declaration of Human Rights. An important step towards this aspiration would be to include a requirement in the combined code of corporate governance that businesses should report annually on the measures that they are putting in place to achieve this, to uphold the rule of law and to ensure environmental sustainability in their international operations.

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Professor John Ruggie, UN special rapporteur on business and human rights, argued for measures to advance corporate legal responsibility through countries establishing extraterritorial jurisdiction over corporations for violations of international laws and conventions. What plans for action do the Government have to improve the quality of social and environmental reporting, and how might they move towards the high aspirations articulated by Sir Geoffrey Chandler and Professor Ruggie?

7.59 pm

Lord Patten: My Lords, I want to make three points before the clock strikes three. First of all, I strongly believe in the corporate, social and environmental agenda. I equally strongly believe in the enterprise economy in this country. It is extremely important that our growth agenda succeeds at a time of fragile economic recovery. Therefore I believe it is extremely important that across the piece, in the areas of environmental responsibility and corporate social responsibility, there is no more unnecessary loading of unnecessary regulation on the shoulders of businesses, which are trying to create jobs and employment opportunity. It is extremely important to counterbalance the quite proper pleas for better reporting, greater clarity and all the rest that we have seen. Along with our growth agenda, we also have, as a coalition, a happiness agenda. I know that the Minister wants to make me happy, and I hope that she will indeed make this Back-Bench Peer happy in her wind-up speech by saying that we are not going to have any more unnecessary regulation in this area of corporate social responsibility and environmental social responsibility between now and 2015.

Secondly, there are of course some successful companies that have made very good money by selling themselves quite properly as ethical producers. Body Shop and Lush are examples from the cosmetics world, while Ben & Jerry's and Innocent are producers in the worlds of ice creams, fruit drinks and vegetables. By comparison, most companies make cars, build buildings or supply services and try to be good corporate citizens, just as most individuals try to be good individual citizens. They are generally now, I think, very responsible in these areas. The noble Lord, Lord Harrison, who has a good track record for introducing interesting debates of this sort, said in his very interesting speech that he wanted more companies to take the view that this was an important issue. In my experience, in declaring my own financial and corporate interests, I think most companies do indeed take this very seriously and have already taken the view that this is something that they should do. In other words, it has entered into their corporate DNA. Just as belatedly, in the slipstream we are seeing the need to have more women and greater diversity on the boards of our companies getting into the DNA. It is lagging a bit and still has some way to go, but with the enactment of the Bribery Act last Friday, we are going to see ethical training and ethical codes also coming along and getting into the DNA of companies. That is a very considerable agenda indeed and I think that the direction of travel is right.

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Lastly, investors and institutions have been criticised for perhaps not being active enough, particularly those that hold shares for a short period. I welcome very much the Government's encouragement for greater employee share ownership. I think that is a very good thing, and as the Government and others try to explain why participating in a capitalist economy is a good thing, at the same time they should stress financial benefits and their promotion and the opportunities for people with shares newly given to take an active interest in the social and environmental agenda of the companies of which, after all, as employees, they are now part-owners.

8.03 pm

Baroness Sherlock: My Lords, the Minister may struggle to make us all equally happy, but I hope to find some common ground at least. I add my voice to those who look at the reasons why environmental and social reporting should be something that we promote. For a start, it would help to increase public trust in business and in those who regulate it, which we could do with as much of as possible. Nevertheless, reporting requirements are mainly there to make sure that stakeholders can make informed judgments about companies. If we overly limit that to too narrow financial information, we fail to take seriously the indirect, unintended or non-financial costs-or indeed benefits-of corporate activity. The consequences are very serious. In economic terms, it fails to account for externalities and in practice can distort a market. In social terms, it fails to take account of the full range of stakeholders who have a legitimate interest in the company's activities because they-we-are affected by them.

Is the noble Lord, Lord Patten, right in saying that no more regulation is needed? I fear not. If we look at the environment, it seems very clear that voluntary reporting simply cannot deliver results on the scale and at the pace that is necessary to meet the reduction in emissions that British law already requires. In my view, carbon reporting should therefore be mandatory, at least for large companies. In terms of social accounting, we have heard ample evidence that current narrative reporting requirements are not being followed. A recent report from the Corporate Responsibility Coalition summarised the problems pretty well as follows:

Apart from that, it is going swimmingly.

There is good practice out there. I discovered recently that the first plc in Britain to produce an audited social report was not a corporate giant but Traidcraft, a medium-sized company founded in Durham in 1979 to fight poverty through trade. I am sure that my noble friend Lord Haskel has enjoyed some of its chocolate bars and tea. In 1993, Traidcraft published an audited social report, and I hope that the Minister has had the opportunity to look at its social accounts. I found them fascinating. They told me more about the impact of that company not just on its customers, members and supporters but on its supply chain right the way through to its staff and the lives of the very farmers out in developing countries. That is a true social report. I encourage the Minister to comment on it and to share some of the methodology with larger companies.

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There is so much more that companies could do. If they will not, they must be required to, I regret. At the very least, we should see full monitoring and compliance with the current requirements. However, we also need some guidance on what should be reported on, and we need an audit standard and, crucially, a timetable for when disclosure of social data will be verified. If data cannot be verified, it simply undermines their legitimacy at all. We may, in fact, discourage people from doing this rather than encourage them.

8.06 pm

Lord German: My Lords, I declare my interest as a trustee of a pension fund, and I want to speak exclusively about the investment in pension funds. It is there, of course, where people are investing their money day in, day out, month in, month out, preparing for the world in which they want to live when they retire. That is why social and environmental issues are going to be extremely important for them. However, the chain of command, as it were, between the investment itself-from the pension fund investors right through to the people who manage the money on their behalf-is very long indeed. It is very difficult to see transparency through that route. That is why I think it is important that these issues should be discussed and understood right throughout that long chain.

Since 2000, pension funds have had to state the extent to which they take into account social, environmental and ethical considerations. However, much of the reporting has been very much a tick box, where people would tick a small box or put in a straight statement, which would not give enough information to the person whose money was going into that investment fund. We believe that, from the disclosure of information, you get more empowerment and that the person who is putting their funding in is getting more empowerment for their money. We have had years of voluntary codes, yet only 64 per cent of fund managers and 21 per cent of pension schemes publicly disclose their voting records so that the investors in that company can see them. Obviously, investors have a right to know and understand, but disclosure is only the first step to empowerment in the part-ownership that they have in the company.

The Government have reserve powers, which they have taken, to make voting disclosure mandatory if voluntary disclosure does not generate sufficient improvement. Of course, the coalition agreement contains a commitment to,

I know that the Government have consulted on this and are intending to launch a further consultation in July; but could the Minister tell us where the direction of travel is on this particular part of the coalition agreement and where it is likely to end up?

There are three key problems that I think we need to address in this whole area of pension funds. The first one is unreliable information; that is, the lack of verification, making it difficult for investors to rely on reports that look through rose-tinted spectacles. Secondly, there is the problem of incomplete information, with

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many companies focusing on corporate citizenship activities, such as volunteering, rather than on key social and environmental risks to their core business. Could the Minister tell us, in winding up, whether she intends to bring forward proposals specifically to drive up the quality of social and environmental reporting, as indicated in the coalition agreement?

8.09 pm

Lord Moynihan: My Lords, I thank the noble Lord, Lord Harrison, for securing this debate. I declare an interest as a director of the US-based Rowan Group of companies and chair of its health, safety and environment committee.

I agree with my noble friend Lord Patten that the vast majority of companies see a clear alignment between social and environmental issues and their overall business strategy. However, some companies have a gap between their board's aspirations with regard to social and environmental issues and the way they are enabled and enacted within their own organisations. I hope that tonight's debate will enable government to work afresh with companies to close the gap between companies' stated social and environmental policies and the actions and investments they make to pursue those objectives, particularly where the objectives may lack a clear financial return on investment or drive long-term rather than short-term benefits.

As my noble friend Lord Newby said, Deloitte, in its impressive analysis of sustainability and business today, concluded that while many companies promote the sustainability concept of the triple bottom line-pursuing performance in economic, social and environmental spheres-most companies primarily invest in environmental initiatives out of the three. I believe we live in a generation where there is an imperative for companies to consider broadening their efforts in the communities in which they operate as well as in the physical environment. In this context, I support the proposal for companies to drive for competitive advantage by helping them establish or maintain a voluntary social licence to operate in their target communities and markets; that is, to gain the support of the people who live and work in those communities and markets.

These objectives and principles can be embedded in the corporate governance criteria followed by all companies and, of course, in their reporting policies, not least where social and environmental issues are usually considered alongside safety within the remit of HSE committees. I agree with the noble Lord, Lord Harrison, that social, environmental and safety issues should all meet the legal and voluntary requirements to be fully and appropriately covered in annual reports and, I would add, in internal reporting to employees and, as the noble Lord, Lord German, has just said, to the investment community as well.

From my experience the energy sector, human safety and environmental protection, regulatory oversight of licensing, energy exploration and production require reforms and a new priority within corporate governance, even beyond those significant improvements already made by the sector and this Government. This is an area where co-operation and dialogue with government should be preferred to further primary legislation at this time.

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8.12 pm

Lord Whitty: My Lords, I congratulate the coalition on rectifying what I thought was part of a very bad mistake by the previous Government whereby, even though the noble Baroness's department was all lined up to introduce operational and financial review provisions that would have required companies to report on social and environmental objectives, the carpet was pulled from under them by the Treasury, as the noble Lord, Lord Newby, said. I am glad that the intention is there; now let us see the reality.

I am going to dwell largely on carbon reporting, and I declare an interest as a member of the Environment Agency's board. In that capacity, I chair the Environment Agency's pension scheme, whose chief officer my noble friend Lord Harrison has already quoted, which attempts to ensure that our investments help to induce some more effective environmental and social reporting.

Clear environmental reporting, particularly on greenhouse gases, has a major effect not only on transparency but also on internal management behaviour and external investors' priorities. Without clear, effective and audited reporting, we will not meet the changes that are required in company behaviour in order to meet the climate change objectives that were laid down with all-party support in the Climate Change Act.

The Climate Change Act provides enabling powers in this respect. It is also important to recognise that, as far as the institutions, particularly pension funds, are concerned, there is no conflict between a proper interpretation of fiduciary responsibility, an interest in climate-change proofing the activities, objectives and balance of activities of companies and investors of funds. Indeed, all such large bodies should include within their objectives a climate-change proofing strategy, but that is not the case.

As others have said, only just over half of large companies have any reporting of climate change objectives and, of those, only 22 per cent have any reporting that relates to the Defra guidelines. As the noble Lord, Lord Newby, said, only 9 per cent of larger companies fully comply, according to the Deloitte survey. That does not indicate-and I am afraid I have to differ with the noble Lord, Lord Patten-that there has been a change in the DNA of corporations, or at least in that of their auditors and accountants. As the noble Lord, Lord Moynihan, said, it may be that the good intentions of the board are not being reflected through the technical reporting responsibilities. However, without those indicators internally and externally, we cannot achieve the climate change objectives that we need, so they are a vital tool for those objectives.

I hope that the Minister will be able to say tonight that the wind is moving in the right direction on this and that we will see some action. I look forward to her response.

8.15 pm

Lord Stoneham of Droxford: My Lords, I want to address two issues in the context of this debate. I believe that there is too much emphasis on short-termism in companies and there is often a danger of arrogance, particularly in dominant market positions.

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Too many companies are pressed by the short-term-profit instincts of the stock market and investment banks and cannot think long term. I worked for a local newspaper company with strong family ownership traditions. It believed in investing long term for the next generation and for its local communities. We worried constantly about the dangers of overgearing in a very cyclical industry. It was taken over in 1999 by an executive team committed to a business model of borrowing, cutting costs and assuming that the boom would go on for ever. Ten years later, that company came to the brink of bankruptcy, and shareholder value today is 2.5 per cent of what it was in 2007. It simply never thought long term.

Successful companies can get introverted and arrogant. They can become oblivious to their communities and markets, particularly if they are too dominant in their markets. I believe the high-paying bankers got remote and out of touch with reality for those reasons. Even Tesco seriously contemplated unacceptable tax-avoidance schemes despite its prime dependence on British consumers, and News International, which I worked for at the time of the current phone-tapping scandal, but not as a journalist, perhaps will find that it became too arrogant with its success and out of touch in its pursuit of competitive advantage. Some of its executives lacked a hinterland that would have warned them against the consequences of their actions. It is frightening that a risk taken nine years earlier can finally catch up with that company.

We need counters to short-termism and arrogance. Principal shareholders are now largely pension funds, which should be primarily interested in the long term. Wider social responsibilities need instilling in directors to keep them in touch with their communities and markets. The key for the Government-and I am pleased that the coalition is reviewing this-is to clarify the requirements for company reporting, to improve identification of risks and to force directors to address their social and environmental concerns and risks. Greater concern for social and corporate responsibility should help counter company arrogance and complacency, and we should encourage the accountability of pension fund managers to their savers, so social and environmental risk is at the forefront of their responsibility as shareholders.

8.18 pm

Lord Young of Norwood Green: My Lords, I also wish to congratulate the noble Lord, Lord Harrison, for introducing this debate on such an important issue.

I declare an interest as vice-chair of the Ethical Trading Initiative, which is a tripartite organisation whereby companies, trade unions and NGOs work together to improve the lives of workers throughout supply chains, which in today's world are truly global. Companies that sign up to The ETI Base Code, which is based on the ILO conventions, agree that,

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Needless to say, all these companies are on a journey, but there is a real pledge and commitment in their reporting to try to live up to these principles enshrined in the base code.

In this brief contribution I will touch only on the issues of transparency and accountability, which seem to me the key themes that have run through this debate. Let me quote from a speech that Ed Miliband made on responsibility. He said:

"On pay, companies should publish the ratio of the pay of its top earner compared to its average employee. If it can be justified by performance, they should have nothing to fear. We need shareholders to better exercise their responsibilities to scrutinise top pay. And we also need to recognise-as many great companies do-that firms are accountable to their workers as well as their shareholders. Some companies already understand that having an employee on the committee that decides top pay is the right thing to do. We should debate whether this requirement should be extended to all firms. And of course the same should be true in the public sector. So we need responsibility at the top of society, but we also need it at the bottom".

On the need to avoid the short-termism that has been referred to during this debate, Ed Miliband said:

"It is worth recalling that JP Morgan founded his financial company on the idea that the ratio of pay between the highest and lowest paid employee should be no more than 20 to 1".

Interestingly, the noble Lord, Lord Patten of Barnes-not to be confused with the noble Lord, Lord Patten, who spoke in this debate-recommended something similar in a contribution he made on Andrew Marr's breakfast show. The new chair of the BBC Trust suggested that he was interested in the "very good ideas" contained in the Hutton report on public sector pay, which suggest not a ratio but certainly something like this 20 times approach. The Hutton report said that that pay multiples should be published and any increase in the figure should be explained publicly.

I want to end on this question of whether exhortation, as opposed to a bit more regulation, is the right way forward. We can see from this debate that there is still a long way to go on the quality of reporting from many companies. How important is this? We should focus our minds on the fact that, in October 2012, another 9 million people will start to be enrolled into pension schemes, in which their savings clearly will be at an investment risk because they will be members of defined contribution schemes. There is a real importance in ensuring that companies are not short term in their approach and that they genuinely recognise their environmental and social responsibilities.

I look forward to hearing the response of the noble Minister.

8.22 pm

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