§ 3.55 p.m.
§ Lord Lucas rose to move, That the draft order laid before the House on 20th June be approved [24th Report from the Joint Committee].
§ The noble Lord said: My Lords, with the leave of the House, I shall also speak to the Local Authorities (Contracting Out of Investment Functions) Order 1996.
§ Many functions of local government may be carried out only by officers of a local authority. The two orders before your Lordships are intended to give local authorities greater freedom, where they so wish, to use the private sector to provide services which they would normally have to provide themselves.
§ The Local Authorities (Contracting Out of Tax Billing, Collection and Enforcement Functions) Order is intended to clarify an authority's powers to contract out its billing, collection and enforcement functions on council tax, community charge and national non-domestic rates.
§ The order will enable local authorities to delegate to a contractor most of their statutory functions and decision-making powers relating to the administration of local taxes—for example, whether a dwelling should be regarded as exempt from council tax or, where payments have not been made, whether to initiate enforcement action against a taxpayer.
§ Each decision which is taken by a contractor must be based very firmly on the conditions which are set out in statute. There should therefore be no greater risk if a contractor takes those decisions than there is when the decision is made by a local authority officer.
§ Of course, not all decisions should be in the hands of a contractor. For example, where taxes are unpaid and other enforcement action has proved unsuccessful, an authority can apply for the debtor's commitment to prison. Because of the serious nature of that ultimate penalty, its use should remain exclusively with local authorities. The order therefore does not allow the delegation of these powers to a third party.
§ Local taxpayers' rights will not be affected by this legislation. They will still have the same rights of appeal, both to the local authority and to the valuation tribunals. And if they are aggrieved at anything which has been done in the council's name, they will still be 757 able to lodge a complaint through the council's own procedures or through the Local Government Ombudsman.
§ In summary, this is a sensible and worthwhile change which is widely supported by local authorities because it achieves the right balance between allowing an authority to use a contractor for its revenue collection services, while reserving the most difficult decisions for the authority.
§ I turn now to the Local Authorities (Contracting Out of Investment Functions) Order which does four main things. First, and principally, it allows a local authority to delegate decisions on the investment of its cash to a contractor. Pension funds and trust funds are outside the scope of the order, since these are covered by separate legislation. The contractor may be a bank, building society, or another financial institution such as a specialist fund management company. In practice, many local authorities already use such contractors to invest money for them. This order will now clarify their powers to do so, and establish some rules for contractors.
§ Secondly, the order specifies who can contract out the function of investment; that is, a local authority as defined in the Deregulation and Contracting Out Act 1994. This includes county and district councils, London borough councils, and county borough councils in Wales, as well as parish councils.
§ Thirdly, the order sets out the type of investments in which the contractor can invest money. These must be approved investments under the Local Government and Housing Act 1989. Essentially, approved investments cover certificates of deposit, bills of exchange and gilts.
§ The fourth main element relates to safeguards. As I said a moment ago, the order sets out rules for contractors. Chiefly, these are: that contractors must be suitably qualified and experienced; they must abide by proper investing and accounting practices and must comply with the local authority's instructions; the contractor is also required to provide three-monthly reports to the local authority, setting out the action taken on the authority's behalf, and to supply any information requested by the authority; the contractor cannot pass on the decision-making on investments to anyone else. Other parties can only be involved with the direct approval of the authority.
§ To summarise, this order is a sensible measure which will be helpful to local authorities in clarifying their powers. It also establishes limits, rules and safeguards for those who are investing money on local authorities' behalf. I commend the order to your Lordships.
§ Moved, That the draft order laid before the House on 20th June be approved [24th Report from the Joint Committee].—(Lord Lucas.)
§ Lord Williams of Elvel
My Lords, the House will be grateful to the noble Lord for moving the first order. I was unaware that we were to take both orders together. I am perfectly happy to do so but I was not informed through the usual channels that the Minister wished to take both orders together. I wanted to make a 40 minute speech on the first and perhaps a 45 minute speech on 758 the second! However, I shall not detain the House and prevent your Lordships dealing with other important matters on the Order Paper.
As we are taking the two orders together, I shall start with the contracting out of tax billing order. First, I am glad to see that there is no question of compulsion. That is an important issue and we would have opposed the order very strongly if there had been an element of compulsion. Secondly, I hope that the Minister can give an assurance that those who undertake to collect tax on behalf of local authorities will have proper confidentiality arrangements in their contracts.
Thirdly, I hope that the noble Lord can elaborate on what he said about enforcement. To say the least, it seems curious that private companies might be in the business of enforcing debts incurred as a result of non-payment of council tax or of any other tax that the local authority might be involved in. That is important because, as the Minister will readily recognise, people who do not pay their council tax are frequently unable to do so for many different reasons; indeed, I am sure that I do not need to go into the whole history of the poll tax to illustrate my point. I hope therefore that the Minister will be able to give me those assurances in his reply.
I turn now to the contracting out of investment functions order. I imagine, although the Minister did not say so in specific terms, that any contractor who is employed by a local authority to put out the cash of a local authority will be properly registered either under the banking Acts, under the building society Acts, or, as the case may be, under the Financial Services Act. If that is not the case, I hope that the noble Lord will tell me. We do not want cowboys putting in bids for local authority cash payments to be placed anywhere they like.
The Minister referred to CDs—that is, certificates of deposit. Are foreign exchange CDs excluded from this order? If the order is agreed to and there is a contract, are contractors allowed to put out a local authority's money into foreign exchange CDs? If so, under what circumstances and how? As local authority liabilities are all in sterling, it would seem to me slightly odd if contractors were able to invest in dollar, deutschmark or yen CDs of which there are plenty. Having said that, I have no particular objection to the orders to which the noble Lord has spoken. However, we need some reassurance on the points that I have raised.
My Lords, I thank the noble Lord for his support. I apologise for the fact that he was not given proper notice that we were to take both orders together. It had not occurred to me that that information might not have been transmitted to the noble Lord. I can only apologise. I can certainly confirm what the noble Lord asked me to confirm on the subject of compulsion. There is no wish that these matters should be a matter of compulsion; indeed they are strictly voluntary.
I shall deal, first, with confidentiality and enforcement as regards the tax billing order. Contractors will be covered by the requirements of the Data Protection Act in exactly the same way as local 759 authorities. Information obtained for a specific purpose, such as the collection of council tax, cannot be used for another purpose without the knowledge of the persons concerned. Many people in the private sector are concerned with private information—for example, banks, solicitors and many others. Given the fact that the regulations are in place, we see no reason why the same standards should not be expected of contractors in this instance.
As regards enforcement, there are, of course, delicate decisions to be made in the recovery process. However, a contractor will be governed in the decisions that he makes by the law and guided by the policies set down for him by the employing council. It will be for the authority to ensure that both are observed. That will be an important residual function for the authority, however much it contracts out.
I turn now to the second order. Article 9(3) of the order makes it clear that contractors need to be authorised under Section 207 of the Financial Services Act 1986. I know that the noble Lord is more familiar with that Act than perhaps I am, but I hope that he finds that response to be satisfactory. Foreign exchange deposits are clearly not approved investments or, indeed, the sort of investments that we would be likely to think of as approved investments. I agree with the noble Lord as to the mismatching that would occur if such investments were allowed. We are not looking at this as being a risky portfolio; we are looking at it as being a reasonable collection of alternative and relatively safe investments. I hope that that gives the noble Lord the comfort that he desires.
On Question, Motion agreed to.