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

Lord Tunnicliffe Excerpts

Tuesday 11th February 2020 Grand Committee

[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?

[The Earl of Courtown]

My Lords, I thank noble Lords for their contributions and questions.

My noble friend Lord Deben asked how Parliament will be kept informed. I may have to write to him with the exact details on that issue, but I will take it back to the department and try to get some clarification on it.

First, I will deal with the point made by the noble Lord, Lord Tunnicliffe, and explain how loans to authorities will now be managed and controlled. The statutory instrument does not change how loans are managed or controlled. The purpose of the statutory instrument is to resolve to administrative risk around the recruitment and maintenance of a quorate board of commissioners, as I said earlier. There is no change to existing debt or to lending terms. Day-to-day operation of the PWLB will continue to be managed by the Debt Management Office. No action is required by local authorities. The Government consulted on this change in 2016 and found widespread support.

[Lord Tunnicliffe]

With respect, that does not answer the question. To be fair, I gave him a few hours’ notice of it. Subsequent questions suggest that it has not gone exactly right—that this money has not been used for general purposes. I cannot take a view on that unless I know how the Debt Management Office does its job. For example, what criteria does it use? How much direct control does it have, or is it a big bag of money? I know that I should know that, but given the number of portfolios I have, please forgive me for not knowing the answer to my own question.

[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.