Public Bodies (Abolition of Public Works Loan Commissioners) Order 2019

Lord Deben Excerpts

Tuesday 11th February 2020 Grand Committee

[Lord Shipley (LD)]

My Lords, I remind the Committee that I am a vice-president of the Local Government Association.

This is an appropriate measure for all the reasons the Minister set out. Indeed, the responses to the formal consultation indicate broad agreement. In paragraph 7.14 of the explanatory document, there is a reference to annual reporting to Parliament, which sounds as if it is going to be enhanced. I suggest that when the Government report to Parliament, they comment on whether they see the level and nature of borrowing causing any concern, generally or specifically, in relation to a single council. It is important that local councils do not turn into property companies, with council services becoming an ancillary function. That would be a very rare event, but it is something one has to guard against. It is reported in the media that councils have spent around £5.5 billion in property acquisitions over the past three years, with a quarter of that being invested in the retail sector. Issues arising include whether they may have paid more for the property they have acquired than the market value. Is there any evidence of local authorities borrowing from the Public Works Loan Board and paying over the odds for what they are purchasing?

Secondly, it is important for the Government to report on whether there is a danger of assets declining in value. We have recently seen some of the problems that there are with retail shopping centres. I find it entirely understandable that a local council might wish to invest in its own retail shopping centres or in property within its own borders, but I find it harder to understand why some councils are investing in places a very long way from their immediate responsibilities in their area.

Finally, there is social housing. As Members will know, last year, there was a 1% increase in the interest rate for loans from the Public Works Loan Board. I am interested to know what the Government think the impact of that is on the ability of local councils to build social housing. Most Public Works Loan Board borrowing now relates to social housing. The removal of the borrowing cap on housing revenue accounts was welcome, but the rise in the Public Works Loan Board interest rate may have negated some of that positive impact. How do the Government plan to judge the correct level of interest rate that encourages the building of social housing?

[Lord Deben (Con)]

My Lords, I follow the noble Lord, Lord Shipley, on the first of his points. It is a great pity to abolish things that have been going on for so long, but if we are going to do it, it is perfectly sensible. I am not really arguing about that. However, there is an opportunity here to make sure that there is better understanding about some of the decisions that are made.

I declare an interest because one of my businesses advises companies on sustainable development in the sense of building. Obviously, we see what the market for development is; it is very noticeable that, on quite a number of occasions, developers have decided that the price being offered for a particular development has been too great but a local authority has been prepared to pay that price. It may be that the local authority is clever enough to be cleverer than the developer, but in the one case, it is quite a difficult profession, and in the other case, it is an ancillary activity and sometimes one notices a certain belief by the local authority that it knows better. I am not saying that that is always true but I suggest, as the noble Lord, Lord Shipley, rightly said, that it is a question we have to ask.

My worry is that, with the very serious downturn in shopping, particularly in the kind of malls that have been bought by local authorities, it must be true—it is not a question of asking whether it is true—that quite a number of local authorities have spent above the odds and now hold significant assets that may be worth considerably less than they actually paid for them. To give them some uncharged advice, if I may: it ain’t going to get any better. This is not an area where sensible people would invest, except in circumstances where they really did have a plan for the future that is very different from others.

It is important for us to have much more independent reporting from the Treasury if it is to take over this role in name as well as in fact. Parliament ought to be much more aware of these matters—not because we should be interfering with local authority decisions in single cases, but if there is a general change where we are seeing some real concerns, it is important that Parliament should be warned of it because it could have serious effects in a number of local authorities that are seeing their purchases as a mechanism for supporting both the government resources that they get and their own local rates.

I hope that we can have an undertaking from my noble friend that the Treasury will look with great care in its report and think seriously about enabling Parliament to take some interest, not in individual decision-making but in the overall issues thrown up by local authorities’ investment from borrowings from the Public Works Loan Board.

[Lord Tunnicliffe (Lab)]

My Lords, the Labour Front Bench does not intend to oppose these statutory instruments but the essence of the case for getting rid of the commissioners is that, essentially, they do not do anything and taking them away will have no impact or a benign impact. That is quite an attractive argument, until it alerts one to the question of how these loans are actually managed and controlled.

So, my first question is: can the Minister flesh out a bit more how loans to local authorities are managed and controlled? I realise there is a letter from John Glen that may answer this question but there is a crucial difference between a letter that floats around among Peers and a record in Hansard. Local authorities will be reading this debate—poor souls—and a clear statement by the Minister in the record is worthwhile, so can he explain how loans to local authorities will now be managed and controlled?

Secondly, I come to the exact point that was made previously. I do not know, but it sounds as though it is true that some local authorities have been taking loans and investing their money in property, perhaps as a straightforward business exercise to support their other incomes. If the answer to that is yes—it seems that it is—is this practice legal, or at least is it seen as undesirable? In the light of the fact that it has been debated in other places, has it now been stopped?

My next question is: why were interest rates raised—last autumn, I believe—from 1.8% to 2.8%? I do not know the system, so does this apply to current loans or just to new ones?

--- Later in debate ---

[The Earl of Courtown]

I understand that the noble Lord is for ever on his feet on a wide range of issues. I am probably putting the cart before the horse. If we go to the cart, I will come on to aspects of the management of the governance relating to these loans.

The noble Lords, Lord Shipley and Lord Tunnicliffe, and my noble friend Lord Deben referred to property investments being made by local authorities. Decisions on borrowing and spending capital are devolved to local authorities. They pick capital projects in line with local priorities and choose how to pay for those projects, including whether to borrow. Where local authorities borrow, they must have regard to the prudential framework—as set out by CIPFA and MHCLG, or the respective devolved Administration—to ensure that they borrow prudently.

[Lord Deben]

If I may say so, the phrase “to ensure that their borrowing is prudent” covers a multitude of sins. My issue is not that local authorities should not be able to borrow or to make their own decisions, but if they make a number of decisions that mean that there is a change in the way in which the Public Works Loan Board is being used, does my noble friend not think that that issue should be raised in Parliament, not just left to the local authorities?