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Local Government, Planning And Land (No 2) Bill

Volume 414: debated on Monday 27 October 1980

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2.58 p.m.

Further considered on Report.

Clause 15 [ Rates of return: powers of Secretary of State]:

The noble Lord said: My Lords, this amendment seeks to delete from Clause 15 the provisions which specify that a rate of return shall be shown in respect of any description of work specified in regulations under the relevant subsection. It will be within your Lordships' recollection that when we were discussing the earlier provisions of this part of the Bill relating to accounting matters I sought to demonstrate that it was quite impracticable to obtain a rate on the capital employed in each of the particular sections which, as the House will recall, relate to work on the highways, contracts above and below £50,000 and maintenance work.

I thought that my arguments at that time found favour with your Lordships, because of course in order to determine a rate of return on capital employed for each description of work, one has to ascertain the capital relating to each particular degree of work. As I explained, where a direct labour organisation has its own warehouses, stores, and plant and machinery of a wide variety, it is common for that organisation to use that equipment generally. It may at very short notice be switched from one description of work to another, and consequently, as we discussed in earlier clauses, it is not possible to prepare a balance sheet in respect of each particular description of work carried out. I believe that when it came to the accounting provisions the noble Lord was constrained to accept that amendment on the grounds that it is not possible to prepare a balance sheet in respect of each particular description of work.

Arising from that point (in which I was sustained by the noble Lord, Lord Avebury, who is not present at the moment) it would follow that it is not possible, with any reasonable degree of accuracy, to determine the amount of capital employed in terms of division of assets, stock in trade, or whatever it may be, spread over the four headings. Of course, I am well aware that by means of very considerable analysis, and a great amount of extra clerical labour, it is possible to ascertain the number of hours that an individual machine, formally belonging to the whole of the direct labour organisation, is used in any particular category of work. Therefore one could arrive at a rough—and it would be very rough asset utilisation factor which would produce a result showing so much capital consumed during the period under review. But that is not the same as a return on capital employed, because as I say even though it is possible to work out in meticulous detail machine usage, there would be very lengthy periods of time when the capital was not in use by any of the five departments at all, and so the result would be completely artificial.

This part of Clause 15 which insists on the calculation of a rate of return for each description of work is completely unrealistic. If there is any endeavour to enforce it, it will involve a number of assessments and approximations and some crystal gazing that would make the result quite meaningless, and indeed it is to be hoped that the Government will take that into account.

There is another reason involved. Your Lordships will recall that under Clause 8 of the Bill the local authority, when determining the cost of the service being provided, actually fixes the price. It must in advance make a written statement of the amount that corresponds to the selling prices, and under the Bill the Minister himself has power—because he can do virtually anything—to vary that. If the Minister does not like the selling price that goes into the accounts for the purpose of determining the rate of return, he can alter it. In short, within the provisions of this part of the Bill, the Minister himself can virtually determine in advance what would be the rate of return on capital employed, always on the assumption that he could go through the contortive calculations, to which I have ventured to draw your Lordships' attention, which would involve a very considerable waste of time and extra expense within the local authority.

On the assumption that it is feasible and indeed desirable for the Secretary of State to fix a rate of return on capital employed—and this is a very large assumption—it is practicable to do so only on the DLO as a whole rather than on the individual descriptions of work, and I should have thought that commonsense would have dictated such a course. It is in order that even at this late hour the Government may quit what I shall call nit-picking at the local authorities, insisting upon some detail of this kind, which as I have said, is entirely worthless, that I hope that the House will support the amendment. I beg to move.

3.6 p.m.

(Lord Bellwin)

My Lords, we discussed most of the arguments involved in this matter when we were considering Amendment No. 41, which the noble Lord, Lord Bruce of Donington, moved to Clause 14. The Government's case is that we must prevent the risk of cross-subsidisation. We must therefore require authorities to calculate separately the rate of return that their DLOs are earning on the separate parts of their business. We must have information available in as clear a form as possible, so that councillors and ratepayers can see just where their operations are succeeding and where they are failing.

We have looked at the arguments so very well put by the noble Lord, Lord Bruce, at this stage, and in Committee, too. We have looked at the arguments and have weighed the objections, and in the end have concluded that notwithstanding the points that he makes—and some of them have some validity in themselves—in the context of the totality of what we are seeking to achieve by these measures, we cannot accept the amendment. Clearly we could debate this question at greater length, but I fear that we should not get very far in so doing. Since the last stage we have discussed this matter with the institutes, the professional bodies, to which the noble Lord, Lord Bruce, referred earlier. While certainly they do not say that what we are requiring is easy, nevertheless, as the noble Lord himself has said, the view is that, yes, it can be done. We recognise the possible difficulties, but on balance we feel that the weight of the argument is such that we cannot accept the amendment.

My Lords, I very much regret that the noble Lord cannot accept the amendment. I feel that I must correct him ever so slightly; I do not think that he in any way sought to mislead the House. He referred to the professional bodies and I think that I ought to speak for my own Institute of Chartered Accountants in this particular respect. The institute said—and I have the correspondence—that segregation in this way, and the requirement of a rate of return on capital employed on each description of work, would produce a very considerable degree of approximation. I think that I ought to make that clear. My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

My Lords, before I call the next amendment, I should point out that if it is agreed to I cannot call Amendment No. 44.

3.10 p.m.

moved Amendment No. 43A:

Page 15, line 38, leave out ("shall have power at any time, if he thinks fit, to") and insert ("may, if the rate of return on the capital employed is less than the required rate,").

The noble Lord said: My Lords, we were brought to this point in the Bill at the Committee stage by a wide-ranging debate opened by a powerful speech from the noble Lord, Lord Sefton, and then, immediately before this point, a rather more precise amendment was moved by my noble friend Lord Renton—and I am sorry that neither of those noble Lords are present. I am sorry; I am glad to welcome my noble friend Lord Renton to his place at this propitious moment, because he moved an amendment in much the same words as the one I am now moving. Incidentally, I think it would be convenient if at the same time I spoke to Amendment No. 48A. That had the effect of obtaining from my noble friend Lord Bellwin an assurance that he would look at this matter again and see whether the purpose sought by my noble friend Lord Renton and now by myself was in fact achieved by the Bill as drafted, or whether, as I still believe, an amendment of this kind is needed in order to restrict the powers of the Secretary of State to the purposes which he is setting out in the Bill, not only in this clause but in the Explanatory Memorandum to the Bill itself. I beg to move.

My Lords, I wonder whether I may briefly support my noble friend Lord Sandford, and thank him for mentioning that I raised this matter at the Committee stage. I am thankful to say that I arrived here just in the nick of time. A point which I think should be stressed is that the Bill as originally drafted and the Bill as still drafted fails to carry out the intentions of the Government as declared in the Explanatory Memorandum. If noble Lords would turn to col. 251 of the Official Report, or, indeed, to the Explanatory Memorandum attached to the Bill as it came to us, they will find that paragraph 4 of that Explanatory Memorandum said, relation to Part III, that it:

"enables the Secretary of State to deprive authorities of the power to maintain direct labour organisations where a prescribed rate of return on capital has not been achieved …".
I would suggest, bearing in mind that that is clearly the purpose, that the purpose should always be stated where it is clearly the intention of the Government and of Parliament, and that should be done in this particular case; and that therefore this simple amendment—either my noble friend's or mine, which differ only to the extent that he has the word "and" in front—should be accepted. Accordingly, I am thankful to be able to support him.

My Lords, I think your Lordships will recall that at the Committee stage of the Bill the noble Lord, Lord Bellwin, conceded, as reported in cols. 247, 248, 249 and 251 of Volume 413, No. 184, of the Official Report, that there was considerable concern about the Secretary of State's unrestricted and, some people would suggest, unprecedented powers in this clause, first, to call for a special report under subsection (4) and, secondly, to require cessation of operations of a direct labour organisation under subsection (5). As the noble Lord, Lord Renton, has said, it does not even carry out the wishes or the intentions as set out in the Explanatory Memorandum. I had hoped, and I am sure several of your Lordships had hoped after the encouraging words of the noble Lord the Minister, that there would have been some amendments put down to this Bill; but I hope that, in the absence of that, your Lordships will be willing to accept this amendment, which I think goes most of the way to settling the doubts, the problems and the reservations which were expressed at Committee stage.

My Lords, the powers taken by subsection (4) are very wide indeed. They provide:

"The Secretary of State shall have power at any time, if he thinks fit, to direct a local authority or development body to make and submit to him, within such time as he may specify in the direction, a special report …";
and then the remainder of the subsection covers that. These are very wide powers. Indeed, on the receipt of the special report required under this particular subsection he may, under the current drafting of the Bill, order the closure of all or any part of a local authority's direct labour organisations even if there are no irregularities in the accounts which are produced.

These are very wide powers indeed, and, if I may say so, they highlight the whole of the Government's attitude towards local authorities. Their attitude is based on the assumption that local authorities do not know what they are doing, that their electorates are not informed and that they are not subject to any of the ordinary democratic checks. This is a direct taking of power by the central Government on the basis that the central Government know best, and they can exercise it precisely as a matter of caprice or personal whim of the Minister and the local authority has got to come to heel.

I understand that, if Amendment No. 43A is carried, then Amendment No. 44, which is in the names of my noble friends Lady Fisher of Rednal and Lord Sefton of Garston and myself, will not be able to be called. I am bound to say on behalf of myself and my noble friends that we much prefer Amendment No. 44 to Amendment No. 43A, which has been moved by the noble Lord, Lord Sandford. Undoubtedly, however, the amendment moved by the noble Lord, Lord Sandford, is much better than the existing wording of the section, and for my own part I am constrained to support it on those grounds—that it is better, and in politics it is sometimes better to have half a loaf than no loaf at all. So we shall wait to see what happens to the amendment moved by the noble Lord, Lord Sandford, and shall reserve our rights accordingly.

My Lords, when we had quite a lengthy discussion on this in Committee I undertook to have another look at the drafting, but I hope I was careful to say that that re-examination would be limited to the wording and would not extend to the substance, because quite clearly there is a difference between the noble Lord, Lord Bruce, and myself as to the intentions of what we are proposing here; and I am not so sure that the same is the case in relation to the points raised by my noble friends Lord Sandford and Lord Renton.

The Government have always envisaged that it would be failure to earn the rate of return which would precipitate the call for a special report, and it was on that basis that the clause was drafted and the Explanatory Memorandum was drafted, too. Meanwhile, however, it has been pointed out that there are other circumstances where action might be necessary; for example, in relation to abuses of the tendering procedure. Thus, although the Explanatory Memorandum remains a substantially true description of our purposes, it is not necessarily an exhaustive one. There is, of course, no opportunity to amend the Explanatory Memorandum at this stage; it is not part of the Bill, and has served its purpose of giving a general description of the effects of the Bill. I understand very well the arguments put forward in support of this amendment, and, as I undertook at Committee stage, we have examined the drafting very carefully indeed. At that stage it was obvious on all sides that there was much concern over the words
"the Secretary of State shall have power at any time if he thinks fit".
At first glance, it could look like a very autocratic discretion. Both my noble friends in moving this amendment have done us a service in pointing out how little difference there is between this formula and the familiar phrase, "the Secretary of State may".

My noble friend's amendment as a whole, however, makes a real change in the meaning of the provision. It seeks to restrict the power of the Secretary of State to call on an authority to prepare a special report to those circumstances in which there has been a failure to earn the required rate of return. At earlier stages in the development of our policy I might have found it easy to agree with him. Certainly, a failure to make the return has been the trigger that we have always envisaged as the most important and likely occasion for a request for a report. I have no doubt that, in practice, the Secretary of State will be looking for that very thing.

It has been pointed out with some force that there are, as I have indicated, other circumstances in which it might be useful to be able to ask an authority to justify itself. For example, an authority might be tempted to comply with the letter of the tendering provisions but to avoid its merits. There is no requirement, and we do not seek to impose one, that authorities should always accept the lowest offer received as a result of the invitation issued under Clause 8. It would be open to an authority to continue to give work to its direct labour organisation in the face of the evidence of competition that there were cheaper and more efficient alternatives. It would be easy to fix direct labour organisation prices on this basis to ensure an apparently satisfactory rate of return, but such a case would cry out for investigation.

We have been persuaded that we need the power for this purpose as well as to look at the failures in purely accounting terms. I hope that my noble friend may feel that his amendment goes further than at first sight seems to be a simple and logical attempt to take away an autocratic power such as the words "as he thinks fit" would seem to indicate. If so, no doubt he will not pursue his amendment.

My Lords, it is certainly true that there may be circumstances other than a failure to achieve the rate of return required which may cause the Secretary of State to want to have a report submitted to him or to investigate a matter. If the situation is that with my amendment he could not do that, there may be a case for leaving these very wide powers in the opening sentence of subsection (4). To that extent my amendment goes further than the amendments of my noble friend, Nos. 47 and 48, which only restrain the power of the Secretary of State to the purposes set out in the Explanatory Memorandum and in the first subsection of the clause.

I think that the sweeping powers given to the Secretary of State to cause an investigation to be carried out or to call for a report need to be limited, as I have argued and as my noble friends and others have argued, before he is able to take the action prescribed in subsection (5)(b); namely, that of requiring a local authority to cease to operate a direct labour organisation. Before that happens, I think it is necessary for him to be satisfied that the rate of return has not been achieved.

Unless my noble friend wants to make any further comments, I would now propose to withdraw my amendment but to suggest to my noble friend that his rather more limited amendment should be discussed again when we reach No. 47. If he is disposed to press it, then I would certainly be disposed to follow him. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

3.25 p.m.

moved Amendment No. 44:

Page 15, line 38, leave out ("if he thinks fit") and insert ("where a local authority has failed to conform with the appropriate statutory provisions").

The noble Baroness said: This amendment that I move on behalf of myself and my noble friends follows the discussion that we have been having but perhaps does not require emphasis on just one point; that is, the capital employed. What we say is that, if local authorities fail to conform with any of the statutory provisions, obviously that will be when the Secretary of State could quite likely call for a special report. But, as my noble friend Lord Bruce was saying, the whole clause is drafted in a very wide way; and we have to recognise, in my view and in that of my noble friends, that all the way through the direct labour part of this Bill the drafting shows quite clearly that the dice is loaded against direct labour organisations. If there are no irregularities in the accounts, if there is nothing that a local authority has done wrong, still the Secretary of State can demand a report. It is this that worries me particularly. Here again we have directly elected representatives on local authorities who are having power taken away from them whether they have a direct labour organisation or not.

What is particularly worrying—and I should be glad if the noble Lord when he answers would give some indication of what actually constitutes a direct labour organisation so that all noble Lords will understand what we are talking about—is that I believe that many noble Lords think that a direct labour organisation is some adjunct to a housing department and that during the winter months they sweep the snow from the roads. To cite the example of the authority I know best, it has three large direct labour organisations, but they are not so named. The actual DLO which was set up was completely disbanded when the Conservatives took control of the city. The very large organisation which is called the city engineer's department has a direct labour organisation; the education department of that city, because it has such a lot of schools and colleges to look after, again has a direct labour organisation; and the housing department, which has the largest number of council houses of any city in Great Britain, has a very large direct labour organisation which is called the city maintenance department for housing.

These are not small departments employing 30 or 40 people. These are huge departments in the local authority. What is worrying is that it might be that one of those departments of the direct labour organisations is not showing a true return on capital or it is not fulfilling some obligation and this may mean that the whole DLO of the city would have to be closed down because one of the large component parts of it was not doing everything that was asked for in this particular clause. Therefore, our amendment is clear, and is something which I think will be acceptable to all local authority associations, bearing in mind that they are keeping to the letter of the law. I beg to move.

My Lords, I will do my best to answer the points the noble Baroness made when she referred to the different bodies. So far as I am aware, there is not in the Bill a definition of DLOs as such, but I think that what a DLO is will be obvious to most people. Here I am taking a chance in giving my definition, but it seems to me that it would be a unit of people employed directly by the local authority themselves to carry out certain works. We know that in practice what that usually means is either works of maintenance or, in some cases, of new building, or whatever.

It is quite true, as the noble Baroness said, that some authorities have departments which themselves employ a direct labour organisation. Some housing departments do it. They employ their own staff who do maintenance and so on. Certainly my former authority, which was only marginally smaller in terms of having a housing section, did not have a separate section at all. There was just the one organisation within the city. But there will be various types.

I do not think that what the Bill requires matters so much. Indeed, I think the noble Baroness made my case very well for the need for a separate return in the case of separate sections of a DLO, so that it will be possible to ascertain the facts. If I were a ratepayer in that authority I should very much want to know that one part of the organisation was perhaps doing badly. I might also be happy to know that another part was doing well. But the only way I could know would be if separate returns were required.

This amendment seeks to limit the power of the Secretary of State to call for a special report in those circumstances explicitly set down under the Bill or its orders or directions; but this is too narrow. As I think I indicated when speaking to the last amendment, there could be other circumstances where the spirit if not the letter of the legislation is being broken. I mentioned then the persistent failure to choose the lowest tenderer under Clause 74. To take another example, there could be such a margin of failure by a DLO that a special report became imperative before matters got out of hand. We are living in a world where waste cannot be allowed to go unchecked, and the Secretary of State must be given discretion to step in and at least ask for an explanation. That is the first such step, and I do not think many people quarrel with that as a philosophy on its own.

This is not an unfettered power. There is protection at all times in the courts. If it is found that the Secretary of State has exercised his power for an improper purpose or on legally irrelevant grounds, the courts can order such action to be quashed. I appreciate the concern on this matter, particularly from noble Lords opposite, but at the end of the day it comes back to the whole issue of everybody knowing, and knowing of the success or failure of the component parts, if I may put it that way. I see no harm at all in that; quite the contrary. I think it is long overdue.

My Lords, I should like to make one small observation. I myself was responsible for an organisation which, by comparison to those which have been mentioned was very small; nevertheless from my own point of view it was a very important part of the university of which I was in control at one time. The point which bore itself on me, time after time, was the appalling complexity involved in making realistic comparisons between costs of work done in different ways. If one had a works department one had to carry the overhead costs of it whether it was being employed or not. Very often it is more important, in the interests of the efficiency of the work, that the date at which the work begins should be convenient rather than that the actual total cost of the measured work should be low.

All of these points constantly obtruded on attempts made by accountants to assess the efficiency of our works department, and I came to the general conclusion that acccounting in not the precise, determinate enterprise that people think. It is arbitrary; it involves an enormous number of assumptions and it is very easy grossly to oversimplify the apparent costing concerned and come up with arguments which are most misleading. For that reason I hope that some form of amendment, which does not give the Secretary of State too sweeping powers to intervene in what may be a much more complicated matter than he has any reason to understand, will somehow be in this Bill.

My Lords, your Lordships will be grateful to my noble friend Lady Fisher of Rednal for having elicited from the noble Lord the fact that a direct labour organisation as such has been nowhere defined. My noble friend drew his attention to the fact that the provisions of the Bill might very well apply to the city engineer's department or that part of that department which was concerned with maintenance of schools. In short, it may well be that the application of this Part of the Bill goes far wider than would ordinarily appear from the contents of the Bill itself, together with its explanatory notes. It is all very well for the noble Lord, in the exercise of his usual personal charm, to indicate to the House that of course all these powers will be used very reasonably. In fact, he was talking in such modest terms that one would wonder whether it was likely they would ever be used at all, so amenable was his whole attitude towards this application.

Here we have to be concerned with the text of the Bill. It says quite clearly that
"The Secretary of State shall have power at any time, if he thinks fit …".
These powers cannot be mitigated, and certainly would not be mitigated in law, by any statement of the noble Lord that they will always be exercised reasonably and perhaps very rarely. The words are what they are, and we in this House must be concerned with them; and we must be concerned also with their consequences.

One of the consequences of allowing this phrase to remain in the Bill is that it will also enable the Minister's right honourable friend Mr. Heseltine to order the closing down either of a direct labour organisation as a whole or of that particular section which gives offence. He can do that, if necessary, without giving any reason. It is all very well for the noble Lord to say, "Well, if the local authority is aggrieved it can bring an action in the courts". In these circumstances, is it not better that the other side of the coin should be shown? If the Minister has any reason to believe, or the reports show, that the local authority has broken the law, then of course it is always open to the noble Lord's department to go to the courts and show due cause.

This is a matter of balance: what can be done one way can also be done by the other way. We are dealing with two democratically elected organisations. On the one hand, a Government deriving their responsibility from Parliament democratically elected; and, on the other hand, a local authority which is dependent on its local franchise. In regard to the affairs which it is actually administering under the very noses of its constituents, the local authority is much more closely linked with the people that elected it than Parliament themselves.

Therefore we think that it is very unreasonable that this power should remain. The noble Lord, in the course of replying to my noble friend, threw more interesting light on the operation of the clause as a whole. He mentioned that it would of course be possible to close down one department that was not paying its way in terms of yielding the rate of return, calculated on a current cost accounting basis, determined by his right honourable friend.

May I invite the noble Lord to contemplate the results of that? It would mean that if one type of work was closed down, it would no longer have any share in the assets of the direct labour organisation as a whole. Therefore if one department was closed down, and on the assumption that the direct labour organisation owned all the assets that were used—plant and machinery, cranes, bulldozers, joiners' shops and all the rest of it—then the remaining three descriptions of work would have to be reapportioned out. That would throw up the actual capital employed by the remaining three, so that one or two of the remaining three would then find their rate of return on capital employed diminished by the same proportion as that obtaining in the one that was closed down. In short, the noble Lord has revealed that if he took action in regard to one department, it would have a domino effect and would be very likely to put one, two or the remaining departments into the red so far as the rate of return is concerned.

I have said on previous occasions—and I will not weary your Lordships—that this part of the Bill is a hodge-podge. It is going to work with a degree of approximation that involves the undue use of astrology and crystal ball gazing. It is going to waste an enormous amount of time of the local authorities. If the various provisions of this clause are going to be checked thoroughly at the Minister's headquarters in Marsham Street, he is going to have to engage many more accountants and staff there. I would have preferred him to abandon this part of the Bill, which is largely irrelevant except that it seeks to protect local private building interests rather more than it does the actual ratepayer. However, he is not prepared to do that and, at this stage, I would not press him to do so. But he would be well advised to accept Amendment No. 44. If he does not, I am afraid that I must ask the House to divide upon it.

3.44 p.m.

My Lords, may I follow one point that the Minister has made which was mentioned by the noble Lord, Lord Bruce of Donington: the right of the local authority to resort to the courts if they think that the Minister has not behaved reasonably. The words used by the Minister of Housing in another place were that the Minister would have to show good cause. The only way a local authority can challenge the Secretary of State in this is that he has acted either in bad faith or fraudulently. As I said in Committee, I do not believe that any Government would be likely to act fraudulently or unreasonably.

Several noble Lords—particularly noble and learned Lords—will tell your Lordships that unreasonableness is something that is very narrowly constructed by the courts. A local authority, in taking proceedings against the Secretary of State, will have to be placed in the position of proving a negative: namely, that the Secretary of State has not acted properly. That is an extremely difficult, onerous and almost impossible basis for a local authority to proceed upon.

What worries me—and I regard it as an unprecedented invasion of the liberty of local authorities—is that the procedure is activated by the Secretary of State calling for a report. All he has to prove is that he has considered that the direct labour organisation needs to be considered in depth. He cannot prove that it has been considered in depth until he has called for the report. Once he has the report, he can close the organisation down. This seems extremely arbitrary.

On those two grounds, I am concerned—as I am sure several other noble Lords are—about the arbitrary powers that this clause in its present form gives. I hope that the Government might be prepared to consider some form of amendment.

3.48 p.m.

My Lords, I wonder whether I might present to the House a somewhat different angle although it leads to the same conclusion. As I understand it, this House has always been keen to prevent the use of dictatorial powers, from whatever source they may come. Therefore, this House—without regard to the political complexion that a Minister might have—is anxious not to give him too many powers over the citizen over which the Government have jurisdiction in so many respects.

Obviously, there is an even greater need to restrict that power when one is dealing with an authority that the citizens have elected regarding the decisions that they have made. Therefore I ask the House to consider carefully the words:
"if he thinks fit".
That is the sole discretion which the Minister has to exercise, if it be a discretion at all.

There is another principle that this House holds dear—indeed, we hold it dear as a nation; that is, no man shall be judge in his own cause. We are so careful in all our legislation, in all our provisions of justice, to see that the person who calls for a report, the person who has the power to decide, shall not always be the judge in his own cause; that there shall always be a right for a third party to look at his judgment and question it.

There is no right of appeal here at all. There are two principles which are very sacred to us which, in my submission, are very relevant to this matter. There is a third point and, having made it, I will sit down. The whole of the atmosphere of this Bill, we were told, was to create a better relationship between central and local government because restrictions on local government were in many cases being decreased. I do not ask the House to go into a dialectical debate at this moment—we have had it before—as to whether that is the effect of the Bill. But I do not have to go that far in suggesting to the House that the words
"if he thinks fit",
which enable him to close the department, are not only worsening the relationship between central and local government, but lead into a situation about which the noble Lord the Minister in this House and indeed the Minister of Housing in another place have said: "The local authority can go to the courts and challenge the decision of the Minister to close it down".

Are we looking at a Bill regarding the relationship of central and local government, and doing it as we should do, when we lead ourselves to the stage that if a Minister's power is to be challenged at all it has to be challenged in a law case where the local authority is the plaintiff and the Minister at the central Government is the defendant? Is that the way we are looking at this Local Government Bill?—because if so, if I may say so, we are looking at it in a myopic condition which is not worthy of us. That is why I ask the noble Minister to look very carefully at these three points and to see whether rather radical principles are not at stake. I hope that he would have valued all those principles, or if not all three at least one of them, and that he would find it possible to soften and therefore yield in some measure to this amendment.

My Lords, I think what we have to do immediately is to get this whole thing into perspective. What are we talking about? So far as this amendment goes, we are talking about calling for a special report. We are talking about the Secretary of State calling for a special report to consider the position in a direct labour organisation where, for the reasons we have talked about before or indeed for any other reason, he feels he ought to look at exactly what is going on in that organisation. With that as the basic fundamental point, everything else falls into place, because not only can I see no harm in that but I think it is eminently desirable and, indeed, long overdue, that there should be such an interest taken, in the interests of those people who are not always able properly to see that their interests in this way are looked after.

I think it is right and proper that there should be such a power to call for a report to highlight the position and see if there have been shortcomings in procedures, performance or anything else on the part either of a direct labour organisation in its entirety or indeed in any separate part of such an organisation.

Therefore, my Lords, although I subscribe to the generality of what the noble Lord, Lord Mishcon, said about principles as a whole, when we apply them to what we are talking about in this amendment, then I think that the case rests, and I think it is important that we should not accept this amendment and that we should not seek to diminish in any way that which the Secretary of State is trying to ensure is done on behalf of


Airedale, L.Gaitskell, B.Mishcon, L.
Amherst, E.Garner, L.Noel-Baker, L.
Amulree, L.Gladwyn, L.Oram, L.
Ardwick, L.Gordon-Walker, L.Pargiter, L.
Bacon, B.Gosford, E.Peart, L.
Balogh, L.Greenwood of Rossendale, L.Ponsonby of Shulbrede, L. [Teller.]
Banks, L.Grey, E.
Beaumont of Whitley, L.Hale, L.Reilly, L.
Beswick, L.Halsbury, E.Ross of Marnock, L.
Birk, B.Hampton, L,Segal, L.
Blyton, L.Hayter, L.Shinwell, L.
Boston of Faversham, L.Henderson, L.Stamp, L.
Bowden, L.Houghton of Sowerby, L.Stedman, B.
Brockway, L.Ilchester, E.Stewart of Alvechurch, B.
Brooks of Tremorfa, L.Jacques, L.Stewart of Fulham, L.
Bruce of Donington, L.Kilbracken, L.Stone, L.
Byers, L.Kilmarnock, L.Strabolgi, L.
Collison, L.Kirkhill, L.Strauss, L.
Cooper of Stockton Heath, L.Leatherland, L.Taylor of Gryfe, L.
Crowther-Hunt, L.Lee of Newton, L.Taylor of Mansfield, L.
David, B. [Teller.]Listowel, E.Underhill, L.
Davies of Leek, L.Llewelyn-Davies of Hastoe, B.Walston, L.
Davies of Penrhys, L.Lloyd of Hampstead, L.Wedderburn of Charlton, L.
Donaldson of Kingsbridge, L.Longford, E.Whaddon, L.
Elwyn-Jones, L.Lovell-Davis, L.Wigoder, L.
Evans of Claughton, L.Maelor, L.Wilson of Radcliffe, L.
Fisher of Rednal, B.


Abercorn, D.Denham, L. [Teller.]Hill of Luton, L.
Abinger, L.Derwent, L.Hylton-Foster, B.
Addison, V.Digby, L.Keyes, L.
Alexander of Tunis, E.Dormer, L.Kinloss, Ly.
Allerton, L.Drumalbyn, L.Kinnaird, L.
Alport, L.Dudley, B.Kinross, L.
Ampthill, L.Ebbisham, L.Lindsey and Abingdon, E.
Auckland, L.Effingham, E.Long, V.
Avon, E.Ellenborough, L.Loudoun, C.
Barnby, L.Elliot of Harwood, B.Lucas of Chilworth, L.
Belhaven and Stenton, L.Evans of Hungershall, L.Luke, L.
Bellwin, L.Exeter, M.Lyell, L.
Belstead, L.Faithfull, B.Mackay of Clashfern, L.
Berkeley, B.Ferrers, E.Macleod of Borve, B.
Bessborough, E.Fraser of Kilmorack, L.Mansfield, E.
Boardman, L.Gage, V.Marley, L.
Boyd-Carpenter, L.Gainford, L.Middleton, L.
Bridgeman, V.Glenkinglas, L.Milverton, L.
Buckinghamshire, E.Gormanston, V.Minto, E.
Caithness, E.Gowrie, E.Monk Bretton, L.
Chelwood, L.Grimston of Westbury, L.Montgomery of Alamein, V.
Clancarty, E.Haig, E.Morris, L.
Clwyd, L.Hailsham of Saint Marylebone, L. (L. Chancellor.)Mottistone, L.
Cockfield, L.Murton of Lindisfarne, L.
Coleridge, L.Harmar-Nicholls, L.Northchurch, B.
Cottesloe, L.Harvington, L.Nugent of Guildford, L.
Cullen of Ashbourne, L.Hatherton, L.Nunburnholme, L.
Davidson, V.Hemphill, L.Orr-Ewing, L.
de Clifford, L.Henley, L.Penrhyn, L.

every body in these whole proposals about direct labour organisations.

3.53 p.m.

On Question, Whether the said amendment (No. 44) shall be agreed to?

Their Lordships divided: Contents, 78; Not-Contents, 111.

Pritchard, L.Skelmersdale, L.Trefgarne, L.
Radnor, E.Soames, L. (L. President.)Trenchard, V.
Redmayne, L.Somers, L.Vaux of Harrowden, L.
Reigate, L.Spens, L.Vickers, B.
Renton, L.Stanley of Alderley, L.Watkinson, V.
Roberthall, L.Strathspey, L.Willoughby de Broke, L.
St. Davids, V.Teviot, L.Wynford, L.
Sandys, L. [Teller.]Torphichen, L.Young, B.
Savile, L.

Resolved in the negative, and amendment disagreed to accordingly.

4.2 p.m.

moved Amendment No: 45:

Page 15, line 43, leave out ("three") and insert ("five").

The noble Baroness said: My Lords, in moving Amendment No. 5, I am asking that we delete three years and insert five years. It is proposed that the special report, for which the Secretary of State can ask, will be based upon the preceding three years' accounts. But I and my noble friends are of the firm opinion that this period is not long enough to judge the performance of a direct labour organisation, bearing in mind the peaks and troughs of the building industry.

I hope that the Minister will take into consideration the fact that, in the private building industry, which he sees as something that is highly competent and something to be copied by direct labour organisations, companies maintain a rolling programme of work. Anybody who knows anything about the building and construction industry knows that private companies are tendering constantly and are being awarded contracts which keep them in operation over a long period of time. This rolling programme, which makes them able to sustain their financial status, is not available in the same way to direct labour organisations, though they have to be comparable with outside builders and contractors. To give them a greater degree of fairness, since they do not have the same rolling programme, we are asking that three years should be replaced by five years. My Lords, I beg to move.

My Lords, we agree that DLO performance must be judged over a reasonable period and we think that three years is a fair minimum. There is, of course, nothing to stop a local authority from preparing a report which covers a period longer than three years. But we must all remember that here we are speaking of ratepayers' money, which is tied up in a DLO—risk capital, one might say, involuntarily collected and applied. The period must be as short as is reasonably practicable. Shareholders in a company would be asking their directors to report if things went wrong over a much shorter time-span than that. In our view, three years is a generous minimum, in that light.

I recall discussing this point at some length in Committee and, if I said anything more now, I should have to go over those arguments once again. I understand exactly what the noble Baroness seeks to achieve by this amendment, but we feel that three years is a fair minimum.

My Lords, I think it ought to be on the record that I think three years is too long. If you want to remedy something that is going wrong, the sooner you know about it and can apply a remedy the better. The indication that something is going wrong is generally within two years and, in order to support my noble friend's reply to the noble Baroness, I would say that, if anything, he is being generous in the direction for which she argues.

On Question, amendment negatived.