HC Deb 15 September 2003 vol 410 cc622-37

Lords amendment No. 6

530 pm

Mr. Raynsford

I beg to move, That this House disagrees with the Lords in the said amendment.

The amendment would insert a new clause at the beginning of part 2. The new clause says that part 2 can be applied only to an authority that has been identified by the Audit Commission as being at risk of overspending its total budget by more than 10 per cent.

I need first to explain the perverse and highly undesirable effects of such an overspending test. It requires the Audit Commission to undertake an entirely new task, which would be costly and potentially very hazardous. In effect, it would require the commission to create what would be a blacklist of authorities that had agreed budgets that were likely to be seriously overspent. How would that be done? The factors that lead to an overspend are extremely diverse and difficult to predict. The commission would have to examine the budget of every authority, consider the various contingencies that might affect it and their likelihood, and from that try to predict whether the outcome would be a 10 per cent. overspend. The scope for disagreement would be immense, and inclusion in the list would be highly likely to be challenged in the courts. A major input of audit resource would be required, which would be reflected in an increase in audit fees for all authorities.

What would be the effect of an authority's inclusion? It should be borne in mind that this is not a general assessment concluding that an authority is a poor performer, but, specifically, a supposedly authoritative statement that it is likely to spend at least 10 per cent. more than it put in its budget. If the authority had reserves of less than 10 per cent., that would effectively mean that it had set an illegal budget. On the other hand, if it had reserves of more than the expected overspend, it would be on the blacklist but not at any financial risk. Its reputation would be compromised for no reason.

The purpose of the amendment is apparently to apply part 2 to authorities that have unsound finances. When Hackney's chief finance officer issued his section 114 report in October 2000, he was estimating an overspend of between £14.5 million and £22 million. The reserves were £6.5 million. The general fund budget for the year, however, was £264 million. The reserves were insufficient, but the projected overspend was less than 10 per cent. of the budget.

Even if it could have foreseen that development, the Audit Commission would not have identified Hackney under the new clause. The part 2 provisions would not have applied in one of the most serious financial crises to have hit a local authority in recent years. This arbitrary test would not guarantee the identification of authorities facing financial crises, while running the risk of needlessly tarnishing the reputation of an authority with sound finances.

The new clause would have another serious consequence. Much has been made of the opposition to part 2 in local government, but one clause, clause 30, has been universally welcomed. It helps an authority to take rapid remedial action when a section 114 report has been issued. The amendment would perversely deny au authority the use of that facility unless it was on the Audit Commission list—but unexpected financial crises can affect many authorities. It is absurd that only projected overspenders would be allowed the means to take immediate action to deal with such a crisis.

Those are the reasons for our belief that this is a perverse and unworkable amendment, but there are more fundamental issues at stake. The purpose of part 2 is to reinforce important aspects of sound financial management in local government. It does that mainly by requiring authorities to follow proper procedures and have regard to appropriate considerations, while leaving the substance of the decisions to authorities themselves. This is all part of our programme to extend freedom, and flexibilities to local authorities—in this case, by repealing the restrictive policies relating to capital spending that were introduced by the last Conservative Government. I am interested to see the right hon. Member for Wokingham (Mr. Redwood) laughing at the fact that his party was responsible for the introduction of those measures.

Mr. Hammond

The Minister is going into chapter and verse about his technical objections to the amendment, but he knows that the underlying principal concern was clause 26, which, in contrast to what he has just said about giving local authorities freedom and allowing them to manage their affairs in accordance with generally accepted accounting practice, gives the Secretary of State the power to dictate reserves. Why did not the Government take the opportunity to accept the Opposition amendment that would have struck out clause 26, and then everyone would have been happy?

Mr. Raynsford

If the hon. Gentleman bears with me, I will come on to precisely that issue. I emphasise that the Bill is part of a programme to extend freedoms and flexibility but, as all sensible people recognise, with freedoms come responsibilities, and the part 2 provisions are sensible safeguards to ensure that the new freedoms are applied responsibly. Clause 26 provides a fall-back power to require an authority to budget for a minimum level of reserves but we have made it clear on many occasions that we would use that power only in very limited circumstances. We have said on the record, and I repeat tonight, that we will set a minimum only if an authority is disregarding the advice of its chief finance officer and is heading for serious financial difficulties. In deciding the level of the minimum, we would take account of the advice of the chief finance officer and any observations of the auditor.

Mr. John Redwood (Wokingham)

I was laughing because the Minister was purporting to say that this is a liberalising Bill when, as my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) has pointed out, there is a very strong measure of centralisation. Before the Minister suggests that I should not be making this point, he should remember that, when I was the Minister with responsibility for local government, the only changes I made liberalised. I would have liked to liberalise more. I wish this Government would liberalise more. This is not the measure that is going to do it.

Mr. Raynsford

I remind the right hon. Gentleman that, when he was a Minister, there was a capital control regime in place that involved central decision taking about every local authority's borrowing—every local authority's borrowing was determined by central Government. That was the policy that he followed. That is what we are doing away with by giving local authorities freedom to take decisions based on a sound prudential assessment of what they can afford to borrow. The only safeguard that we have put in is the safeguard that I have been referring to, which ensures that, in the event of an authority disregarding the advice of its chief finance officer and heading for serious financial difficulties as a result of that, there is a fall-back. I think that any sensible person would recognise that that is prudent and a necessary safeguard, but I hope that we will have to use it very rarely, if ever.

Mr. Edward Davey

The Minister knows that we disagree with the policy as embedded in clause 26 but can he elucidate a little more about when he thinks the power could be used? He said that it would be used on very rare occasions, if ever. Have his officials given him a list of occasions over the past few years when the power might have been applied, given the undertakings that he has just given?

Mr. Raynsford

As I have already said, we hope that we will never have to use these powers. There have been very infrequent occasions where authorities have disregarded the advice of their chief finance officer. There were cases some years ago where authorities got into imprudent financial arrangements, disregarding official advice, but thankfully they have been very few and infrequent, and we hope that they will not happen at all in future. That is why I can say with some confidence that I hope that we will never have to use the powers, but it is a foolish Government who do not make provision for the possibility of one rogue authority taking irresponsible decisions against the advice of its chief officers in certain unforeseen circumstances. If that were to happen and we did not have the power to intervene, I would be surprised if there were not some Opposition Members saying, "How is it that the Government have got into a position of giving these freedoms to local government without any ability to step in and to prevent the people of that area suffering as a result of irresponsible behaviour by the local authority?"

Mr. Hammond

Since the Minister places so much stock on the advice of chief finance officers, will he take some advice from the Society of County Treasurers, which told the Select Committee that the proposals for the Secretary of State to specify that local authorities maintain their reserves at a minimum level seemed to be "particularly problematic and unnecessary"?

Mr. Raynsford

I hear what the society says, and I know that local government is generally hostile to the proposal. But the hon. Gentleman should reflect on the circumstances that I am describing, in which, at some unforeseen future date, an elected authority disregards the advice of its chief finance officer and undertakes highly imprudent borrowing, putting the authority's finances at risk. If that situation arose and the Government had no means whatever to deal with it, would he and the Opposition really be silent? On reflection, he will realise that this is a sensible safeguard that is there for extreme circumstances. We hope that we will never have to use it, but it is a necessary concomitant of a policy of liberalisation that is extending substantially greater freedom to local authorities over their borrowing decisions.

Mr. Redwood

In those circumstances, the Opposition would be saying that the councillors should be changed. We want the council to be accountable. It would doubtless be a Labour or Liberal Democrat council that got into that financial pickle and we would have strong advice for the electors—choose a better council next time.

Mr. Raynsford

I do not have the right hon. Gentleman's party political certainties. I know well that the authorities in difficulty with which I have been engaged over the last two years have been under the control of all political parties. Fortunately, none is in the kind of circumstances that we are envisaging in the Bill, but it would be imprudent not to allow for the possibility that, at some future date, that might happen. This is simply a safeguard that we believe to be necessary.

We have set out in the House and in another place the evidence on which we concluded that the powers were necessary, including the findings of the Audit Commission on current levels of reserves in individual authorities. We take the point that the provisions will apply to all authorities when problems are confined to a minority. We would have sympathy with the point made if the effect of the provisions was to impose added burdens, but it is not. All that these clauses do is to give statutory backing to what is accepted as good practice that all authorities should follow.

The clauses in part 2 were debated in detail in this House and in no case was a Division called against them. I like to think that that was because, when all factors were considered, Members of this House appreciated the importance of sound financial management. Unfortunately, those considerations apparently did not carry the same weight in another place.

The Government are not prepared to take risks on the issue. If the new freedoms in the Bill are to be given to local government, we regard it as essential that the force of statute be given to these basic rules of prudence. The new clause would prevent that from happening and should be removed.

Mr. Hammond

The amendment addresses part 2 of the Bill. It is clear that, even more than in part 1—dealing with capital receipts—the provisions in part 2 are offensive to local government and undermine the Government's claim to want to free it.

We explained to the Minister during the Commons consideration—Members on both sides of the other House also tried to explain it—that the appropriate relationship between central and local Government is not, as the Government seem to think, that of a parent and a child, where freedoms are given conditionally and are undermined by the keeping of reserve powers to step in whenever local authorities do not behave exactly as central Government wish.

Baroness Hamwee described the approach as undermining the capacity of individuals within local authorities. In Committee, the hon. Member for Southport (Dr. Pugh) said that the real test of the Government's commitment to freedom was whether local authorities were to be free to go against the Government's wishes, not merely whether they were to be free to comply with them.

The Minister knows well that the earlier amendments in the House of Lords sought to delete clause 26—the power to dictate minimum reserves. That is the key issue. The amendment represents a different approach to achieving that, by leaving the power in the Bill and limiting its application to councils at particular risk. It is an attempt by our noble Friends to meet the Government's concerns while lifting the implied slur on all local authorities that this part of the Bill, as drafted, contains.

5.45 pm

There is a real problem about the message that this part of the Bill, particularly clause 26, sends to local government. Seen through the Government's eyes and as expressed by Lord Rooker in the other place—this is a frankly astonishing quote— the bonfire of red tape goes beyond the wildest dreams of those in local government as regards what they will be able to do with their new freedoms—without government interference or diktat. That is the whole thrust of the Bill and there is wide consensus on it between all the parties concerned in both Houses of Parliament as well as outside in local government."—[Official Report, House of Lords, 16 July 2003: Vol. 651, c. 902.] I do not know where Lord Rooker gets his intelligence from, but I can assure him that he is wrong on all counts. There is no consensus between all parties in this House or in the other place, nor does it exist outside in local government—not a good start for ministerial connection to the real world. As Lord Hanningfield helpfully pointed out to Lord Rooker just a few moments after he made those startling assertions, all parties in the Local Government Association had unanimously condemned clause 26.

We can cast the net a little wider to test qualified opinion. The Society of Local Authority Chief Executives, in its evidence to the Select Committee, said: The prevailing attitude of mistrust of local government, however, is revealed once again in the Bill's clauses on financial administration". The Chartered Institute of Public Finance and Accountancy—the very body on which the Government are depending, in terms of defining proper practice in the prudential borrowing regime—said: specifying a 'minimum level of reserves' for local authorities is impracticable and should be left to local judgment and good professional practice". I am sure that the Minister is taking note. Not much support there, then, for the assertion of the Minister in the other place. That last quote is particularly telling. The Bill relies heavily on the principle of using standards and codes of accounting practice. They will provide the guidance on proper reserve practices, which will differ from authority to authority. The Secretary of States having a power to override proper accounting practices and standards is inimical to the whole system that he is seeking to put in place.

The Audit Commission said: To date Auditors have resisted making recommendations about minimum levels because it is rightly the responsibility of local authorities to determine this for themselves based on a risk assessment of their operational and business models". We agree with the Audit Commission, the Chartered Institute of Public Finance and Accountancy, the Society of County Treasurers—which I quoted earlier—the Society of Local Authority Chief Executives and the Local Government Association. We disagree with the Minister, and with no disrespect to him, I am afraid that the calculation of the balance of collective wisdom— with Ministers from the Office of the Deputy Prime Minister on one side and all those professional bodies ranged on the other—has not taken me long to perform. The Government are utterly friendless on this issue, as on so many others. Early amendments focused on clause 26; this amendment, carried on Third Reading, uses a different approach, imposing an admittedly arbitrary threshold to try to limit the provisions' scope to local authorities that are judged to be vulnerable. In the other place, Lord Bassam quoted all sorts of technical objectives in terms of the criterion selected and the threshold chosen, but the Government understand very well the objection. They had plenty of opportunity to address it, in this place and during the Bill's passage in the Lords, but did not. My colleagues in the other place—and, I believe, Liberal Democrat peers—were prepared to agree to a sensible compromise with the Government. What they are not prepared to accept is a set of clauses that take back, via reserve powers, all the so-called freedoms that Ministers are so keen to emphasise, for use in circumstances that, by the Minister's own admission, he cannot currently foresee. In keeping those reserve powers, he has underlined how little real freedom local government is being given, how little trust this Government place in local authorities—especially their own—and how far out of touch they are with local government opinion and practice. I urge my hon. Friends to resist the Government's attempt to overturn not only the decision of the other place, but the clear view of all the qualified outside bodies who have opined on the matter.

Mr. Edward Davey

The Government are introducing some good measures on capital finance for local government. We urged them on the Conservatives, who were deaf to our calls, and we are pleased that the Government are adopting a prudential capital regime. That is very good, but having made those advances through liberalising measures, which the right hon. Member for Wokingham (Mr. Redwood) failed to do, the Government have now added a centralising measure. They have thus spoilt what would have been a good story for them to tell.

We argued in Committee, and it has been argued in the other place, that the Government have not convinced anyone that the power is necessary. The reason is that other powers are already on the statute book to ensure that, if a local authority is managing its finances imprudently, the amber and the red light will be turned on and warning given. That applies to the requirements on chief financial officers, district auditors and so forth to report, so we were left bemused about why the extra power was needed. The only answer that the Government have offered is the case of Hackney.

It is worrying when the Government have only one example to justify a new wide power. Although the Minister has offered some assurances—I accept that they are good and I am sure that they will be heard in the other place—local government and other bodies still feel that the powers may be misused. That is the worry. When the Government say that a power has been used only rarely or in one case and then use that case to justify the power, there is a danger that people will not quite trust them. That is the problem.

I would have liked to think that the Minister would learn from the mistakes of the Conservatives. The Conservative Government legislated for local government on the basis of a few rogue councils. They were partisan in pointing to a few loony left councils that they then used as an excuse for imposing huge centralised controls on all the good local government of the period. That was the Tory mistake, and I am surprised that the Government, despite the good aspects of the Bill, are making the same mistake in respect of this clause. I hope that the Minister and his noble Friend Lord Rooker will repeat their assurances because it is important to have them on the record. Unfortunately, they are not in the Bill, and the Minister should understand that that is why so many people are concerned.

Tonight, the Liberal Democrats will have to disagree with the Government, who will need to show in proceedings over the next few days that they are listening and taking our points into account. The Minister will not win the argument for new localism and empowering local government if the Bill that is intended to accomplish those objectives also moves in the opposite direction. He must make a stronger case than he has hitherto provided.

Mr. Redwood

I have had recent experience in my own area of Wokingham of the problem that the Minister has highlighted this evening and during the progress of the Bill. The principal unitary council, Wokingham district council, got into budgetary difficulties a couple of years ago. The council started to spend way beyond the levels laid down in its budget and was unable to increase the tax within the year, so that when the budgetary overspend became pronounced and the financial controls did not work, it ran down its reserves to pay for the spending.

When that happened, I did not ask the Minister to intervene because I happen to believe in local democracy. I felt that the answer to the problem lay in regular elections and taking the case to the electorate. The Minister may be surprised but not pleased to learn that the electorate was capable of sorting the problem out in exemplary fashion—by deciding that the Liberal Democrats who were overspending and running down the reserves were not running the council well. The electorate threw the Liberal Democrats out and put in a Conservative administration. Over the months that have passed since that election of May last year, the Conservative administration has brought spending and taxation more into line and rebuilt the reserves to a much more prudent level. It made the issue of the reserves one of the main issues of the election.

To be fair to the Liberal Democrats—not something that I am usually able to do—the Liberal Democrat councillors in Wokingham would probably say that part of the problem was due to the fact that their officers wrongly advised them. I do not believe that that is a satisfactory defence. Ministers have to take the blame for their officials, and councillors have to take the blame for their officers. I dwell on that because it goes directly to the issue raised by the Minister. He believes that there are wonderful finance officers in local government who always get it right and on whom we can entirely rely. In my view, however, councillors, like Ministers, have to make judgments based on the best available advice. The Liberal Democrat testimony from Wokingham should make us pause and consider whether the council's problems were a combination of political misjudgment and advice from finance officers who had lost control of the budget in trying to implement the policies that were pursued. One cannot always expect finance officers to get all the forecasts right. Sometimes, they may not be aware of the spending pressures that build up in some departments, which are not always under their immediate control.

My conclusion from the Wokingham experience is threefold. First, we should not rely entirely on officers of the council; it has to be a collective judgment. Secondly, such matters can be sorted out perfectly well by the electorate and by the free flow of ideas and criticisms between the political parties fighting for control of the council. It is much easier if, as in Wokingham, there are annual elections, so that issues can be dealt with even more quickly. Thirdly, I see no need to appeal to Ministers to become involved, and there is no guarantee that Ministers' judgments on these matters would be any better than those of the chief finance officers or councillors. Indeed, it would take some time for a Minister to read all the documents and get up to speed in making a difficult judgment about future revenue flows and costs and therefore about what constituted a safe level of reserves.

The Minister and the Liberal Democrat spokesman referred to my role as Minister for Local Government. I freely confess that I did not bring before the House the big liberalising measures that I would have liked, but I reassure the Minister that I tried to. He will know that in a collective and busy Government, it is not always possible to win colleagues over to all that one would like. I have always been against capping and in favour of giving local authorities much more control. I would like to see the current Minister live the brand because, after all, Labour made strong criticisms of the Conservative Administration when they were in opposition, and it is deeply disappointing that they have not lived up to all the fine rhetoric.

Local government does not mean anything unless it has reasonable power of the purse. Often local government will choose to spend more than I would like it to spend, but I believe that it is my democratic task, together with other interested groups from my party, to make the case against overspending and to seek to win elections on that basis. If every major decision is to be second-guessed or overridden by Ministers, it is hardly surprising that people do not take much interest in local government or actively participate in local elections. The Minister should trust rather more to regenerate the interest in local elections that we all want.

Finally, I am sure that the large power assumed in the clause overrides and outweighs all the freedoms that the Minister is granting. It is a clever power: in operating on one element of the budget—but an important swing element—it gives the Minister power to intervene whenever he does not like the budget of a local authority, because he can always say that the reserves are going to be taken down to too low a point and effectively force the local authority either to cut expenditure or increase its tax by rather more at a future budget round. It is an undesirable power, so I urge the Minister to think again.

6 pm

Mr. Raynsford

I feel a sense of unreality about this debate, because we have heard three speeches from Opposition Members that have not been about the new clause that we are debating but about something that they would have preferred as an alternative—the removal of clause 26. We debated clause 26 in detail in Committee. An amendment was moved for the Liberal Democrats by the hon. Member for Southport (Dr. Pugh), who was quoted by the hon. Member for Runnymede and Weybridge (Mr. Hammond) in effusive terms. Indeed, his colleague, the hon. Member for Cotswold (Mr. Clifton-Brown) said at the end of the debate: We must all accept that there will be occasions when elected representatives will get it wrong. The problem arises when they get it so badly wrong that the authority cannot deliver its statutory level of services. The higher authority, the Secretary of State, and the district auditor have a role to ensure the continuation of the services…I hope that he"— the hon. Member for Southport— will not press it to a division."—[Official Report, Standing Committee A, 30 January 2003; c. 249.] That was the Conservative position in the Commons.

When the debate was held in the other place, clause was debated and an attempt to remove it from the Bill was defeated. That is the outcome for that clause. We have had a wholly different debate this evening about the new clause that has been inserted, which would have several perverse and undesirable consequences. It would create a huge new bureaucracy, requiring the Audit Commission to do a vast amount of speculative work in making guesses about the future budgets and viability of every local authority in the country.

The hon. Member for Runnymede and Weybridge pretended that the Government were friendless on the issue, but in fact the Audit Commission has made it clear that it shares our concerns about the new clause on grounds of practicality and the added regulatory burden that it would impose on all authorities. In the nicest possible way, I put it to all Opposition Members that they are supporting a new clause that would substantially increase the regulation of local authorities, impose a whole new bureaucratic framework for examining the budgets of local authorities and result in some perverse outcomes, as I identified in my opening speech.

Mr. Hammond

The Minister is keen to quote the Audit Commission selectively. Will he confirm that he understands that the Audit Commission believes it to be the responsibility of local authorities to determine their reserve levels, based on a risk assessment of their operational and business models?

Mr. Raynsford

I happily agree that that is the responsibility of local authorities. Clause 26, which we are not debating tonight, will simply put in place a reserve power that, as I have already made clear, we see as a long stop that we will be reluctant to use, and that we will use only in certain extreme circumstances. The new clause, which we are debating tonight, does not find favour with the Audit Commission, for obvious reasons I am surprised that the hon. Gentleman should advocate something that is both bureaucratic and burdensome to local government.

Mr. Redwood

The Minister is addressing an important point and it would assist the House and government interest in the debate if he could be more specific about the extraordinary circumstances that would trigger an investigation and possible action under clause 26, because I am not sure how he would do it.

Mr. Raynsford

I am not sure that the right hon. Gentleman was listening carefully when I outlined the situation. As I explained, the new clause would oblige the Audit Commission to form a judgment in respect of every local authority about its circumstances and budgets, and the circumstances that might lead it to overspend by 10 per cent. That would have some perverse consequences, because it would be unlikely to catch all those authorities that were genuinely in difficulty, while at the same time, it could tarnish the reputation of well run authorities that happened technically to breach the regulations. That cannot be a sensible framework. It is a bureaucratic and centralising proposition and I am astonished that Opposition Members should support such absurd proposals when they claim also to support our decentralising agenda of giving more freedom to local authorities, which the Bill will achieve.

Mr. Redwood

That is an interesting answer to a question that I did not ask. I asked about what the Government propose in the Bill, which is the subject of the amendment tonight. I still do not understand what work his Department will do to foresee the authorities that might get into difficulty. How bureaucratic will that be? Will there be more forms or requests for information? What would trigger an investigation and what would trigger action?

Mr. Raynsford

As I said earlier, we gave an undertaking to act only in circumstances in which two tests were passed. The first was that the chief finance officer of the local authority had given advice that was ignored by the council and, secondly, that the authority was, as a consequence, moving towards serious financial difficulties. That will not apply on very many occasions and we have no intention of employing any new staff to monitor the situation. We already have good arrangements for helping those authorities classed as "poor" under the comprehensive performance assessment. The engagement arrangements are working well and, in many cases, authorities are showing real signs of improvement. That is the way in which we will continue to work to support and help authorities in difficulties to recover. We will continue with that work, but we see the need for a long stop to guard against the extreme cases that I described earlier.

The hon. Member for Kingston and Surbiton (Mr. Davey) argued that the powers in the Bill might be misused. However, the powers in the new clause are certainly capable of being misused and they should be removed from the Bill. I hope that he will agree that the powers requiring the Audit Commission to carry out an extensive survey of the finances of every local authority to guess whether it might overspend by 10 per cent. are wholly undesirable. I hope that he will not support the new clause because it is arbitrary, perverse in effect, expensive and undesirable. It is also highly centralising. which would go against everything of which he is in favour.

Mr. Edward Davey

We want to give the Minister one more chance to think again on clause 26.

Mr. Hammond


Mr. Davey

I am glad to have the hon. Gentleman's assent. We understand some of the imperfections of the amendment, but the Minister has an opportunity to accept the principle that underlies clause 26, which is the main driver behind the amendment. We will support the amendment tonight so that it can go back to the Lords and the Government can think again.

Mr. Raynsford

Clause 26 is not before us, but the new clause is. We debated clause 26 in Committee. Perhaps his party did not advocate it sufficiently forcefully, but I have cited the view of the Conservative spokesman from the Front Bench in Committee, who advised the Liberal Democrats not to press the amendment. I also reminded Members that the other place voted on clause 26 and the Opposition were defeated. We are not debating clause 26, because it has been debated in both Houses. We are now debating a separate new clause that would have the undesirable consequences that I have outlined.

Mr. Hammond

The Minister has said several times that we are not debating clause 26. However, the new clause seeks to limit and define the circumstances in which powers bestowed by that part of the Bill, including clause 26, could be applied. It is wrong for the Minister to say that our debate tonight should not include clause 26.

Mr. Raynsford

I did not say that we should not debate matters that might incorporate provisions that might affect clause 26; I said that we are not debating clause 26. We are debating the new clause, which would have a much wider effect because it applies to the whole of part 2, including the provisions that allow greater flexibility in responding to circumstances after the serving of a notice under section 114. That is widely welcomed by local government but would be perversely hindered by the new clause, because only those authorities that had been fingered by the Audit Commission could benefit from that provision. That is an absurd and perverse outcome. The hon. Gentleman knows that the new clause is nonsense. I am sorry that the Opposition have not yet recognised the absurdity of their position and have not withdrawn the new clause.

In response to the right hon. Member for Wokingham (Mr. Redwood), I agree wholeheartedly that it is always desirable that financial difficulties should be remedied by an electoral rather than an imposed outcome. I simply put it to him that quite a lot of authorities hold elections only once every four years, so it is a bit tough to tell the long-suffering citizens of an area that they have to wait three years to remedy a serious financial crisis that could have a damaging impact on services in their area because there is no provision to act in an emergency to deal with extreme circumstances. I repeat that it is only in such extreme circumstances, where the chief finance officer has given advice that has been disregarded and the authority is seriously heading for the rocks, that we envisage using those powers. I hope that it will never be necessary to do so.

We are committed to giving local authorities more freedom; all the provisions in part 1 give substantial additional spending freedoms, in relation not only to borrowing but also in a number of other aspects. This modest provision in part 2 ensures that that freedom is matched by an accompanying safeguard against extreme circumstances. I hope that it will never be needed, but if it is needed I—and, I suspect, those who follow us in this place—will be pleased that it is there to guard against such circumstances. I hope that Members will agree that the proposed new clause, which is unworkable and undesirable, should be deleted.

Question put, That this House disagrees with the Lords in the said amendment:—

The House divided: Ayes 256, Noes 144.

Division No. 311] [6:11 pm
Adams, Irene (Paisley N) Clarke, rh Tom (Coatbridge & Chryston)
Ainger, Nick
Ainsworth, Bob (Cov'try NE) Clwyd, Ann (Cynon V)
Alexander, Douglas Coaker, Vernon
Allen, Graham Coffey, Ms Ann
Anderson, Janet (Rossendale & Darwen) Cohen, Harry
Cook, rh Robin (Livingston)
Armstrong, rh Ms Hilary Corbyn, Jeremy
Atherton, Ms Candy Corston, Jean
Austin, John Cousins, Jim
Baird, Vera Cox, Tom (Tooting)
Banks, Tony Cruddas, Jon
Barnes, Harry Cryer, Ann (Keighley)
Battle, John Cunningham, rh Dr. Jack (Copeland)
Bayley, Hugh
Beard, Nigel Cunningham, Jim (Coventry S)
Benn, Hilary Dalyell, Tam
Benton, Joe (Bootle) Davey, Valerie (Bristol W)
Berry, Roger Davies, rh Denzil (Llanelli)
Best, Harold Davies, Geraint (Croydon C)
Blears, Ms Hazel Dean, Mrs Janet
Borrow. David Denham, rh John
Bradley, rh Keith (Withington) Dhanda, Parmjit
Bradley, Peter (The Wrekin) Dismore, Andrew
Bradshaw, Ben Dobbin, Jim (Heywood)
Brennan, Kevin Dobson, rh Frank
Brown, rh Nicholas (Newcastle E Wallsend) Donohoe, Brian H.
Doran, Frank
Brown, Russell (Dumfries) Dowd, Jim (Lewisham W)
Browne, Desmond Drew, David (Stroud)
Bryant, Chris Dunwoody, Mrs Gwyneth
Burden, Richard Eagle, Angela (Wallasey)
Burgon, Colin Eagle, Maria (L'pool Garston)
Burnham, Andy Ellman, Mrs Louise
Byers, rh Stephen Etherington, Bill
Cairns, David Farrelly, Paul
Campbell, Alan (Tynemouth) Field, rh Frank (Birkenhead)
Campbell, Mrs Anne (C'bridge) Flint, Caroline
Campbell, Ronnie (Blyth V) Flynn, Paul (Newport W)
Caplin, lvor Foster, rh Derek
Casale, Roger Foster, Michael (Worcester)
Cawsey, Ian (Brigg) Foulkes, rh George
Challen, Colin Gapes, Mike (Ilford S)
Chapman, Ben (Wirral S) Gardiner, Barry
Chaytor, David Gerrard, Neil
Clark, Dr. Lynda (Edinburgh Pentlands) Gibson, Dr. Ian
Gilroy, Linda
Clark, Paul (Gillingham) Godsiff, Roger
Goggins, Paul Mann, John (Bassetlaw)
Griffiths, Jane (Reading E) Marshall, David (Glasgow Shettleston)
Griffiths, Nigel (Edinburgh S)
Grogan, John Marshall, Jim (Leicester S)
Hain, rh Peter Marshall-Andrews, Robert
Hall, Mike (Weaver Vale) Martlew, Eric
Hamilton, David (Midlothian) Meacher, rh Michael
Hanson, David Michael, rh Alun
Harris, Tom (Glasgow Cathcart) Miliband, David
Havard, Dai (Merthyr Tydfil & Rhymney) Miller, Andrew
Moffatt, Laura
Hendrick, Mark Moonie, Dr. Lewis
Hepburn, Stephen Morley, Elliot
Heyes, David Murphy, Denis (Wansbeck)
Hood, Jimmy (Clydesdale) Murphy, Jim (Eastwood)
Hope, Phil (Corby) Naysmith, Dr. Doug
Hopkins, Kelvin Norris, Dan (Wansdyke)
Howarth, rh Alan (Newport E) O'Brien, Bill (Normanton)
Howarth, George (Knowsley N & Sefton E) O'Hara, Edward
Organ, Diana
Hoyle, Lindsay Osborne, Sandra (Ayr)
Hughes, Beverley (Stretford & Urmston) Palmer, Dr. Nick
Perham, Linda
Hughes, Kevin (Doncaster N) Pickthall, Colin
Humble, Mrs Joan Pike, Peter (Burnley)
Hurst, Alan (Braintree) Plaskitt, James
Iddon, Dr. Brian Pond, Chris (Gravesham)
Illsley, Eric Prentice, Ms Bridget (Lewisham E)
Jackson, Glenda (Hampstead & Highgate)
Prentice, Gordon (Pendle)
Jackson, Helen (Hillsborough) Prescott, rh John
Jamieson, David Prosser, Gwyn
Jenkins, Brian Purchase, Ken
Johnson, Alan (Hull W) Quin, rh Joyce
Johnson, Miss Melanie (Welwyn Hatfield) Quinn, Lawrie
Rammell, Bill
Jones, Helen (Warrington N) Rapson, Syd (Portsmouth N)
Jones, Lynne (Selly Oak) Raynsford, rh Nick
Jowell, rh Tessa Reed, Andy (Loughborough)
Joyce, Eric (Falkirk W) Reid, rh Dr. John (Hamilton N & Bellshill)
Kaufman, rh Gerald
Keeble, Ms Sally Robertson, John (Glasgow Anniesland)
Khabra, Piara S.
Kidney, David Roche, Mrs Barbara
Kilfoyle, Peter Rooney, Terry
King, Andy (Rugby) Ross, Ernie (Dundee W)
King, Ms Oona (Bethnal Green & Bow) Ruddock, Joan
Ryan, Joan (Enfield N)
Knight, Jim (S Dorset) Salter, Martin
Kumar, Dr. Ashok Savidge, Malcolm
Ladyman, Dr. Stephen Sawford, Phil
Lammy, David Sedgemore, Brian
Lazarowicz, Mark Sheerman, Barry
Lepper, David Sheridan, Jim
Levitt, Tom (High Peak) Simon, Siôn (B ham Erdington)
Lewis, Ivan (Bury S) Simpson, Alan (Nottingham S)
Lewis, Terry (Worsley) Singh, Marsha
Linton, Martin Skinner, Dennis
Lloyd, Tony (Manchester C) Smith, rh Andrew (Oxford E)
Lyons, John (Strathkelvin) Smith, Geraldine (Morecambe & Lunesdale)
McAvoy, Thomas
McCabe, Stephen Smith, John (Glamorgan)
McCafferty, Chris Smith, Llew (Blaenau Gwent)
McDonagh, Siobhain Soley, Clive
MacDonald, Calum Spellar, rh John
McDonnell, John Squire, Rachel
MacDougall, John Starkey, Dr. Phyllis
McFall, John Steinberg, Gerry
McIsaac, Shona Stevenson, George
McKechin, Ann Stewart, David (Inverness E & Lochaber)
McKenna, Rosemary
Mactaggart, Fiona Stoate, Dr. Howard
McWalter, Tony Straw, rh Jack
Mahmood, Khalid Stringer, Graham
Mahon, Mrs Alice Sutcliffe, Gerry
Mallaber, Judy Taylor, rh Ann (Dewsbury)
Taylor, David (NW Leics) Whitehead, Dr. Alan
Thomas, Gareth (Clwyd W) Williams, rh Alan (Swansea W)
Tipping, Paddy Wills, Michael
Todd, Mark (S Derbyshire) Winnick, David
Touhig, Don (lslwyn) Winterton, Ms Rosie (Doncaster C)
Trickett, Jon
Truswell, Paul Wood, Mike (Batley)
Turner, Dennis (Wolverh?ton SE) Woodward, Shaun
Turner, Neil (Wigan) Woolas, Phil
Twigg, Derek (Halton) Wright, Tony (Cannock)
Vis, Dr. Rudi Wyatt, Derek
Ward, Claire
Wareing, Robert N. Tellers for the Ayes:
Watson, Tom (W Bromwich E) Gillian Merron and
Watts, David Mr. John Heppell
Ainsworth, Peter (E Surrey) Gillan, Mrs Cheryl
Allan, Richard Goodman, Paul
Atkinson, David (Bour'mth E) Gray, James (N Wilts)
Atkinson, Peter (Hexham) Grayling, Chris
Bacon, Richard Green, Damian (Ashford)
Baldry, Tony Green, Matthew (Ludlow)
Baron, John (Billericay) Greenway, John
Barrett, John Grieve, Dominic
Beith, rh A. J. Hague, rh William
Bellingham, Henry Hammond, Philip
Bercow, John Hancock, Mike
Beresford, Sir Paul Harris, Dr. Evan (Oxford W & Abingdon)
Blunt, Crispin
Boswell, Tim Hawkins, Nick
Bottomley, Peter (Worthing W) Hayes, John (S Holland)
Bottomley, rh Virginia (SW Surrey) Heath, David
Heathcoat-Amory, rh David
Brady, Graham Hoban, Mark (Fareham)
Brake, Tom (Carshalton) Horam, John (Orpington)
Brazier, Julian Howard, rh Michael
Breed, Colin Jack, rh Michael
Brooke, Mrs Annette L. Jenkin, Bernard
Browning, Mrs Angela Kennedy, rh Charles (Ross Skye & Inverness)
Bruce, Malcolm
Burns, Simon Key, Robert (Salisbury)
Burt, Alistair Knight, rh Greg (E Yorkshire)
Calton, Mrs Patsy Lamb, Norman
Cameron, David Lansley, Andrew
Campbell, rh Menzies (NE Fife) Laws, David (Yeovil)
Carmichael, Alistair Leigh, Edward
Cash, William Lewis, Dr. Julian (New Forest E)
Chapman, Sir Sydney (Chipping Barnet) Liddell-Grainger, Ian
Lidington, David
Chope, Christopher Llwyd, Elfyn
Clappison, James Loughton, Tim
Collins, Tim Luff, Peter (M-Worcs)
Cormack, Sir Patrick McIntosh, Miss Anne
Cotter, Brian Maclean, rh David
Curry, rh David McLoughlin, Patrick
Davey, Edward (Kingston) Malins, Humfrey
Davis, rh David (Haltemprice & Howden) Mawhinney, rh Sir Brian
Mercer, Patrick
Djanogly, Jonathan Mitchell, Andrew (Sutton Coldfield)
Duncan, Alan (Rutland)
Duncan Smith, rh lain Moore, Michael
Evans, Nigel Moss, Malcolm
Fabricant, Michael Norman, Archie
Fallon, Michael Oaten, Mark (Winchester)
Field, Mark (Cities of London & Westminster) O'Brien, Stephen (Eddisbury)
Osborne, George (Talton)
Flook, Adrian Page, Richard
Forth, rh Eric Paice, James
Foster, Don (Bath) Pickles, Eric
Fox, Dr. Liam Price, Adam (E Carmarthen & Dinefwr)
Gale, Roger (N Thanet)
Garnier, Edward Prisk, Mark (Hertford)
George, Andrew (St Ives) Redwood, rh John
Gibb, Nick (Bognor Regis) Rendel, David
Gidley, Sandra Robathan, Andrew
Robertson, Laurence (Tewk'b'ry) Thomas, Simon (Ceredigion)
Roe, Mrs Marion Tyler, Paul (N Cornwall)
Rosindell, Andrew Tyrie, Andrew
Ruffley, David Viggers, Peter
Russell, Bob (Colchester) Walter, Robert
Sanders, Adrian Waterson, Nigel
Shephard, rh Mrs Gillian Watkinson, Angela
Simmonds Mark Webb, Steve (Northavon)
Simpson, Keith (M-Norfolk) Whittingdale, John
Smith, Sir Robert (W Ab'd'ns & Kincardine) Widdecombe, rh Miss Ann
Wiggin, Bill
Williams, Roger (Brecon)
Soames, Nicholas Willis, Phil
Spink, Bob (Castle Point) Wilshire, David
Spring, Richard Yeo, Tim (S Suffolk)
Stunell, Andrew Young, rh Sir George
Taylor, Ian (Esher)
Taylor, John (Solihull) Tellers for the Noes:
Taylor, Matthew (Truro) Mr. Mark Francois and
Taylor, Sir Teddy Mr. John Randall

Question accordingly agreed to.

Lords amendment disagreed to.

It being more than two and a half hours after the commencement of proceedings on the programme order, MR. DEPUTY SPEAKER proceeded to put forthwith the Questions necessary for the disposal of business to be concluded at that hour, pursuant to Orders [28 June 2001, 29 October 2002 and this day].

Lords amendment No. 19 disagreed to.

Lords amendment No. 20 and Government amendments (a) and (b) thereto and consequential Government amendments (c), (d), (e) and (f) agreed to.

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