Local Government and Public Involvement in Health Bill

It is. Trusts come within the definition of ““entity””. That explanation should give noble Lords a broad idea of the complex arrangements that local authorities have entered into in recent years. The third question the noble Lord asked me was whether this was a response to the concerns of Government or of local authorities. Part of this was driven following the capital programmes working party technical sub-group in 2003 that looked at the prudential borrowing system. The Local Government Association expressed a desire for local authority companies to be defined according to accounting practices. That was also part of the motivation for trying to respond. How did we respond? What does this part of the Bill do, and why? I refer noble Lords to a useful article on www.publicfinance.co.uk, which describes in good layman’s language what I am now going to put into impenetrable parliamentary prose. Part 12 is concerned with the proprietary controls on local authority entities. This is the background: financial controls on local authority entities are covered by the Local Government Act 2003, which sets out the regime for prudential borrowing. This part replaces the complex and outdated definitions for local authority companies that is contained in Part V of the Local Government and Housing Act 1989, ““Companies in which Local Authorities have interests””, so the definitions are now aligned to modern accounting practices. That is something new, and I shall explain how that will work. Public Finance magazine carried an article that described the existing legislation as ““dinosaur law””. It noted that the proposals make a lot of sense, should help to further modernisation and are to be welcomed. We have a body of credibility behind us. We trailed this review of Part V of the 1989 Act in the 1998 White Paper, Modern Local Government: In Touch with the People, and Modernising Local Government Finance: a Green Paper in September 2000. The introduction of the prudential borrowing regime in Part 1 of the Local Government Act 2003 fulfilled a commitment to review in relation to financial aspects, but the commitment to review the application of proprietary controls has yet to be fulfilled. The existing propriety controls set out in Part 5 of the 1989 Act and in the Local Authorities (Companies) Order 1995 made under that provision, seek to ensure that companies through which local authorities may undertake their statutory functions and duties are required to act transparently and in accordance with the standards of the authorities themselves. Subject to consultation, our intention is to attach these existing propriety controls to the wider range of entities that local authorities in England and Wales now work through in relation to which local authorities have to keep group accounts—in other words, those bodies in respect of which authorities have access to benefits or exposure to loss. Local authorities now operate through a much wider range of organisations and entities than just local authority companies, as defined in the 1989 Act, such as, for example, limited liability partnerships. The range of propriety controls we are concerned with address the accountability, auditing and personnel requirements of a local authority company. Examples of existing propriety controls cover such matters as remuneration to directors, access to information to members of the parent authority and public inspection of minutes. The existing propriety controls apply to companies differentially on a ““tiered”” basis according to the degree of control that the authority has over the company. The noble Lord questioned the need for the clause. I hope that he now understands that this is a measure to update and apply propriety controls in a very responsible way to a wider range of bodies through which local authorities now work. Clause 213(1) enables the Secretary of State, in relation to England, and the Welsh Ministers, in relation to Wales, to require, prohibit or regulate the taking of actions by entities connected with a local authority. This essentially replicates the existing provision in the 1989 Act. The power to regulate, forbid or require the taking of certain actions in relation to local authority companies, subject to the influence, or under the control of, local authorities, already exists in the 1989 Act. Clause 213(2) provides that the Secretary of State may make an order under this section in relation to all English local authorities, English local authorities of particular description, or particular English local authorities. Subsection (3) provides a parallel power for Welsh Ministers. Clause 213(4) provides that an order under this section may also require, prohibit or regulate the taking of specified actions by a local authority in relation to entities connected with it. Qualifying persons are those members or officers authorised to represent the local authority at meetings of an entity connected with a local authority or who are members, directors or holders of specified positions. Clause 213(5) provides that orders may make provision in relation to all entities connected with a local authority or entities of a particular description. In replacing Part 5, we are also bringing the propriety controls into line with the capital finance rules which apply to local authorities including those made by CIPFA and provided in the Code of Practice on Local Authority Accounting in the UK: A Statement of Recommended Practice, known as the SORP. The SORP definitions capture a more appropriate relationship between an authority and its bodies than the current Part 5 definitions. The entities captured by the SORP are capable of delivering a service or carrying on a trade or business on behalf of the authority. We will be able to capture those entities that show up on the authority’s statement of accounts for that year. Clause 213(6) currently provides that where an order makes provision in relation to entities of a particular description, as set out in Clause 213(5), it may provide for any expression used to describe the entity to have the meaning given by any document identified by the order or a reissue of the document. It means that accounting definitions already in use by local authorities will also be used for propriety control purposes. The intention is that descriptions are able to be based on the SORP without needing to amend the order when changes are made to such documents. However, when we reach later amendments, it will become clear that, in response to a DPRRC recommendation, we have refined our approach to bring the provision more into line with existing arrangements for defining proper accounting practices. In short, the provisions will update, rationalise and simplify legislation. They are not, as the noble Lord suggested, an example of control freakery because we are enacting existing legislation. Now that the new prudential borrowing regime is in place, financial control of local authority entities no longer relies on Part 5 of the 1989 Act. We wanted to achieve the same alignment. I am told that the beauty of the provisions in Part 12 is that they provide for future-proofing against any new legal vehicle. They will also enable an order to be made to define the references in other legislation which replace the definitions in the 1989 Act; that is ““controlled”” and ““influenced””, which we are trying to move away from with the new provisions. We will consult on the content of the proposed orders. The amendment—I am sorry that I have taken so long to come to it—would remove the terms ““requires”” and ““prohibits”” from Clause 213. Its effect would be that the Secretary of State would be able only to ““regulate”” the actions of entities connected with a local authority. That would stop the whole process in its tracks. It might be helpful to explain why. Most of the propriety controls in the companies order impose either requirements on companies, such as requiring a company to provide information to the authority’s auditor, or prohibitions, such as prohibiting a payment to a director who is a member of an authority that is in excess of that to which he is entitled as a member of an authority. The effect of the amendment would be that, in the examples I and others have given, we could not require a company to provide information to the authority’s auditor or prohibit excessive payments. That is what the terms of the order are designed to deliver and why ““regulate”” is insufficient for the purpose. The propriety controls set out important safeguards in terms of openness and fairness, as well as checks and balances. Clause 214 brings trusts connected with a local authority and trustees of relevant trusts within the provisions that can be made under Clause 213. The noble Lord, Lord Livsey, asked about the purpose of controls at Clause 214(2)(c). The power will be used in a very limited way. It exists simply to stop potential abuse—for example, officials or members being paid too much when working for a trust. We have made special provision for trusts and trustees because a trust is a purely equitable obligation and does not easily fall within the consideration of an entity. While it counts, we have had to make special provision for it. Under any obligation as a trustee, a local authority could be exposed to the risk of potential losses arising from it. Therefore, we wish to ensure that trusts can be brought within the scope of the provisions should we wish to do so. Our intention is to use the powers at Clauses 213(1) and 214(2) to enable the existing propriety controls in the Act to apply to trusts as part of the wider range of bodies. Amendment No. 238CA would remove the term ““requires”” in relation to trusts, thereby diluting the provision in the same way as the previous amendment by leaving just the term ““regulate””. I do not know whether I have addressed all the questions raised—it is a complex matter—but I hope that, having been given the narrative behind the clause, the noble Lord will understand it a little more and that the noble Baroness will feel able to withdraw her amendment.