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Localism Bill

Volume 728: debated on Tuesday 28 June 2011

Committee (3rd Day) (Continued)

Amendment 109A

Moved by

109A: After Clause 30, insert the following new Clause—

“CHAPTER 8Appropriation and disposal of landAppropriation and disposal of land by local authorities

(1) The Local Government Act 1972 is amended as follows.

(2) For section 122(2)(b) substitute—

“(b) the council has complied with section 127A, as inserted by subsection (7) below.”.(3) In section 122A for the words after “appropriating the land” substitute “the council has complied with section 127A”.

(4) In section 123(2A) for the words after “disposing of the land” substitute “the council has complied with section 127A”.

(5) In section 126(4)(b) for the words after “appropriating the land” substitute “the council has complied with section 127A.”

(6) In section 126(4A) for the words after “appropriating the land” substitute “the council has complied with section 127A”.

(7) After section 127 insert—

“127A Conditions attaching to certain appropriations and disposals of land

(1) When a local authority appropriates or disposes of land under this section—

(a) the local authority shall give notice of its intention by advertisement in two consecutive weeks in at least one newspaper circulating in the area in which the land is situated, on the authority’s website and by notices on the land, and shall serve a copy of the notice on every other local authority and planning authority whose area includes or is adjacent to that area, (b) the notice shall indicate the location and boundaries of the land and of any land to be given in exchange, and where further information and plans may be inspected or copies obtained,(c) subject to subsection (2), unless the land to be appropriated or disposed of does not exceed 250 square yards (209 square metres) land must be provided in exchange that is not less in area and is equally advantageous to the public, to be vested in the local authority subject to the like rights, trust and incidents that attach to the land to be appropriated or disposed of,(d) the notice shall provide for a period of not less than 28 days from the date of the first advertisement during which objections can be made to the authority,(e) if the authority decides to amend its proposal these shall be subject to further notices in accordance with paragraphs (a) to (c),(f) a proposal that remains subject to objection and is not withdrawn by the authority shall be referred to the Secretary of State for decision.(2) If the local authority considers that land in exchange for that appropriated or disposed of under this section is unnecessary wholly or in part, the notice must state this and give the reasons for the statement.””

My Lords, Amendment 109A, which is on its own, is a long and apparently complex amendment, but it need not take us too long. It is about open space and what happens when open space is disposed of by local authorities. The amendment seeks to amend the Local Government Act 1972 to return it to something like its original form before it was amended in 1980.

The substance of this amendment comes from concerns raised by the Open Spaces Society, which argues that protections are insufficient, particularly around publicity, consultations and the requirement to consider objections. It is about urban open space in particular, which is precious and increasingly recognised as vital to life in towns and cities. The coalition agreement and government promises have made proposals for new designations and protections for green spaces in urban areas, although we have not yet seen the details. It would be a good time to strengthen protections for existing open space in these areas.

When we discussed a related amendment, Amendment 24, the Minister suggested that we might have a meeting to discuss the technicalities and see what substance the Government thought there might be in these proposals. Does she agree that perhaps we can discuss this amendment at the same time? On that basis, I beg to move.

My Lords, I am grateful to the noble Lord for moving this amendment. We were not quite clear what was behind it but he has been very clear about the thrust of the amendment. We support its general direction, which is about protecting open space, particularly urban open space. I do question the use of the phrase “equally advantageous to the public”. I do not know if that is an existing term used in other legislation, but one of the requirements of the amendment is that it must be “not less in area”—understood; that is quite easy to determine—and is “equally advantageous to the public”. There will not necessarily be a single approach by the public as to the advantage of a particular piece of open space: it might be the tranquillity of the view or the opportunity for some recreation pursuits or indeed somewhere to walk the dog, whereas an alternative piece of open space may not be able to satisfy people in the same proportion or mix. I am sure that that issue could be overcome but I would be grateful if the noble Lord, when responding to the Minister, might expand a little on that test; the Minister may also have some views on that. However, I do see the thrust and the benefit of this amendment.

My Lords, I thank both noble Lords for those short contributions—short, I suspect, because I have indicated that I would be happy to have discussions with the noble Lord about this. This amendment has appeared quite late on in proceedings. I do not quite understand its place in the Bill. I think it has found its way in by a devious route. It would be more helpful for the House to see exactly what lies behind the anxiety of the Open Spaces Society about this.

In acceding to speaking to the noble Lord about it, I have to say that we have particular reservations about paragraph (c). As the noble Lord, Lord McKenzie, has just pointed out, that requires a council to provide land in exchange for that appropriated or disposed of unless they can provide reasons under subsection (2) of the proposed new section. This is a difficult area. In order to provide an alternative piece of land, it is possible that the local authority would have to compulsorily purchase another bit of land in order to fulfil this obligation. So we would have considerable doubts and that is one area that I would expect to have a sharp discussion on. Having said that, I am happy to talk about this and come back to it at a later stage if the noble Lord will withdraw his amendment for the moment.

My Lords, I am grateful to the Minister for that reply and I will, of course, withdraw the amendment on that basis. I am not sure what she meant by “devious route”. This appeared on the agenda. It consisted of me sitting at my computer and typing out the amendment and then taking it to those excellent and helpful people in the Public Bill Office who give advice on exactly how things can be done and whose office is one staircase below mine. So it was not very devious at all. This is a good moment to pay tribute and thank the people in the Public Bill Office who are extremely helpful to all of us in putting amendments down.

“Equally advantageous” and “exchanged land” are not alien concepts. Similar language is fairly frequently used as far as open space is concerned in relation to planning applications, particularly where people wish to develop on a common. I would have to check the Commons Act 2006 and the Planning Act 2008 to see what the exact wording is. I am not suggesting the wording in this amendment is perfect but I am putting it forward to get the problem discussed. I am grateful to the Minister for agreeing to do that and on that basis I am happy to withdraw the amendment.

Amendment 109A withdrawn.

Clause 31 : Power to require local or public authorities to make payments in respect of certain EU financial sanctions

Amendment 110

Moved by

110: Clause 31, page 29, line 11, at end insert—

“( ) Only a Welsh Minister may require a local or public authority located in Wales to make a payment of an amount determined by the Welsh Minister in respect of any EU financial sanction imposed on the United Kingdom.”

My Lords, Amendment 110, in my name, introduces a significant group of amendments on the fundamental issue of passing on European fines to local authorities generally. I must admit that I have some grave reservations about the generality of Clause 31 and Part 2 in totality. Amendment 110 is a probing amendment by which I hope to receive adequate clarification of and assurance from the Minister on the Government’s intentions with regard to Wales. However, other amendments in this group may well need to be pressed or at least the option kept open to return to these issues on Report if an adequate response is not forthcoming from the Government.

The basic question behind my amendment is whether these fines can be imposed on Welsh authorities. Clause 36 is quite explicit that Part 2 powers concerning European fines apply only to local government in England. I flagged up at Second Reading the fact that I understood from the Welsh Local Government Association that a letter was sent to a Midlands MP by the Local Government Minister Greg Clark confirming that, under the Bill, the fines apply only to England. Is that the case? If the intention is to apply fines to Welsh local government, by what mechanism is this going to be achieved? There is the possible scenario that Westminster Ministers might impose fines on Welsh local authorities in Wales over the heads of Assembly Ministers.

There are valid reasons to be fearful of the dangers that might arise if central government can pass European fines willy-nilly on to local government when a local authority might not have caused the problem generating the fines or where it might genuinely believe that it was acting in line with UK or devolved government policy in pursuing the action that might have led to the fines. Other amendments deal with these more general issues. Amendment 114A proposes a framework of arbitration that is certainly worth consideration. If no satisfactory response is forthcoming, there will be an opportunity to vote on the clause stand part to delete these European aspects from the Bill.

I do not resile from the concept that if any local authority has behaved in a totally cavalier manner and has through its actions brought fines and penalties on the UK, it is right that those who act in that way might be open to suffer the consequences. However, fines are usually imposed through the system of courts with a proper system of checks and balances to ensure fair play. The Government of Wales have recognised that in rare circumstances the question of such fines might arise, but they understandably feel that the responsibility for passing on any fines to local governments in Wales should be with Welsh Ministers and that they themselves should need to be persuaded that such an action is appropriate.

There are constitutional and practical reasons for the Government of Wales’ approach. In constitutional terms, the National Assembly has full responsibility for local government in Wales and should take any umbrella responsibility on matters such as these. In practical terms, the Assembly has responsibility for ensuring the financial settlements for local government in Wales and so should be involved in any discussion. Furthermore, issues that could generate fines, such as non-compliance on issues such as air quality or waste, are within the responsibility of the Assembly. There is also a need for any passing on of fines to be seen as reasonable and proportionate. Local government in Wales may feel that its circumstances will be better understood by those in Cardiff Bay compared with those in the Treasury in London.

Finally, there is the general question that it is inappropriate to punish local authorities when they are not party to direct discussion with the EU on such matters. They do not have a direct voice in negotiations with the EU in a way that influences EU law. If the National Assembly has the responsibility to implement any such fines in Wales, can we have an assurance that the UK Government would not block Welsh government Ministers from having a direct interface with the EU on such matters? At the end of the day, it would probably be fairer if all these matters were not in this Bill. I beg to move.

My Lords, as well as speaking to Amendments 110A and 186B, I shall speak particularly to Amendments 114A and 115A. Before doing that I should declare some interests that I have not previously needed to declare. I am a member of the Local Government Association’s European and International Programme Board. I have been a member of that and its predecessor bodies for more years than I care to remember. I am also a member of the Committee of the Regions, the EU body established in 1994 under the Maastricht treaty to be the voice of regional and local government in the European Union. Since the Greater London Authority has some interest in these matters as well, I should mention that I was a member of that authority for its first eight years of life and chaired the European sub-committee of the Metropolitan Police Authority.

Amendments 110A and 186B would make sure that any fine could be passed on to a council only in respect of an EU instrument that has been specifically designated by both Houses of Parliament through affirmative resolution so that Ministers would not have carte blanche to pass down any fine. The amendment, which happens to come first on the list, is fairly limited and restrictive.

The substantive amendments before us are Amendments 114A and 115A, tabled by my noble friend Lady Eaton. First, I need to pass on her apologies. She was keen to introduce these amendments but she cannot be here. Today is the first day of the Local Government Association’s annual conference in Birmingham, at which my noble friend has to make what she describes as her farewell speech as the outgoing chair of the LGA. She has therefore asked me to speak on her behalf, which I thought was a very brave decision. I said that I will gladly do so but that I will remain responsible for the words that I use. Therefore, any concern expressed should come only to me.

In the measured terms that we customarily use in your Lordships’ House, it is rather hard for me to express the surprise—the shock, even—anger and concern that were felt in the local government world over all this. The surprise was because the first the LGA knew—this must have been the first any local authority knew—of this being an issue of concern, or indeed an issue at all let alone a proposal, was when the Bill was published. I understand that there had been no prior warning, no prior discussions, no attempts to see whether the problem, if indeed there was a prospective problem, could be resolved in a more satisfactory way than by the inevitably rather blunt instrument of legislation tucked away in Part 2 of a very substantial Bill. I regret that, because it is not generally the way in which any Government in this country have worked on these matters. I do not know how or why it came about, but that was apparently the first that the LGA, and indeed local government generally, knew of such matters.

For that reason, local government and many other organisations would much rather remove Part 2 of the Bill altogether. That was why my noble friends and I put down clause stand part debates for all of Part 2. It remains my view that it would be better if this part was not in the Bill at all. If the Government foresee difficulties and problems of this nature, they should discuss them with the LGA and other interested bodies and find a more satisfactory way of resolving them. I suspect that we are not going to lose Part 2, but I still urge the Government to do that.

My noble friend Lady Hanham was, like me, a member of the Committee of the Regions for many years, and she will be familiar with the practice adopted a few years ago by the European Commission which it chooses to call, in true Eurospeak, “systematic dialogue”. “Systematic dialogue” is more or less what it says; they meet and discuss with representatives of local government and regional government throughout the European Union any issues of concern, issues that are coming up and so on. That ought to be the good practice adopted in this country, and I hope, regardless of the outcome of our discussions on this Bill, that government will undertake to do as we used to do some years ago—I remember going to some of the meetings myself—and discuss issues such as this with local government representatives so that this part of the Bill never needs to be used. I think we would all accept that if we ever get to the stage when government is imposing or passing on EU fines, something somewhere along the line has failed to work. We should not get to that stage, and I therefore hope that the Government will agree to work with the LGA in a spirit of systematic dialogue, of willing co-operation, to try to ensure that that does not happen.

My first contention is therefore to remove Part 2 altogether. If that is not to happen, and the Government insist that this issue needs to be dealt with in this way, through legislation, we need to look at how that is done. The concerns of the LGA and other bodies are that these proposals are unfair, unworkable, dangerous to council budgets and unconstitutional.

I want to deal today with what is described as unconstitutional. The issue is that the Minister, under this legislation, is set to act as judge and jury in this matter, and to be not only the final arbiter but the only arbiter in determining what fines are passed on, in what proportions, how, in what way, and so on. That cannot be right, and more importantly perhaps, it cannot be sensible. It is hard to imagine anything being more open to judicial proceedings because it is so arbitrary and unfair. If we are to proceed with Part 2, we have to look for a system of arbitration that is, first, seen to be entirely independent of the Minister—in other words, the arbiters should not be appointed by him or act as an advisory body—and is, secondly, fair and accepted by both sides.

The amendments before us try to enable this to happen by creating two arbitration procedures, one before proposed EU financial sanction notices and the other before further EU financial sanction notices for any periodic payments. They would mean that both authorities and the Minister would make representations to an independent arbiter who decides whether an EU fine can be passed on to an individual authority. That would take the Minister out of the decision-making process and it would help to ensure impartiality and independence as the decision is reached. Arbiters are not bound by court procedure rules so this compromise would be quicker, cleaner and cheaper than going through the courts. Of course, it does not come without costs—the losing party usually pays the other party’s costs and arbitration costs—but the principle is tried and tested. It is a fair way to try to resolve the issue before us.

I am sure that the Minister is aware—or very soon will be if he is not already—that there is concern not just in the local government world but on all sides of this House. The Law Society, too, has expressed concern about this. Whether we are able to reach an acceptable solution today remains to be seen, but the Government will probably not be in a position to accept it. However, I urge them as strongly as possible, before we come to Report, to recognise that this is an issue of great concern to all sides of this House and that, before the Bill leaves the House, we have to find an independent and fair way of arbitration if Part 2 is to remain part of the Bill.

My Lords, I shall speak to Amendments 111 to 114. Part 2 makes it possible for a Minister to require a local authority to make a payment in relation to an EU financial sanction imposed on the UK by the Court of Justice of the European Union if the Minister is satisfied that the authority caused or contributed to the infraction of EU law. The amendments in my name, Amendments 111 to 114, would amend Clause 31, which among other things sets out the requirement for the Secretary of State to publish a statement of policy setting out the general principles on how the power to pass on all or part of the EU financial sanction will be exercised and the amounts determined. Many of the points that I am going to cover were covered also by the previous speaker. For that reason, there is quite a bit that we have in common.

Amendment 111 would amend Clause 31(4) to require the policy statement also to contain details of the arrangements for the appointment, constitution and operation of an independent review panel. Amendment 112 would require the Minister to take into account relevant determinations of the independent review panel when exercising his functions under this part of the Bill. Amendment 113 would make an EU financial sanction notice subject to the new clause as introduced by Amendment 117. Amendment 114 would determine the relevance of any determination issued by the independent review panel.

Amendment 117 would insert a new clause into the Bill to allow local and public authorities which have received an EU financial sanction notice to refer the notice to an independent review panel, as mentioned by the noble Lord, Lord Tope. The new clause sets out the grounds on which such a referral can be made and provides that the independent review panel may review any finding of fact on which the financial sanction notice was based. These grounds include if a Minister,

“failed to exercise a power conferred by an enactment, and that failure contributed to the infraction of EU law (whether directly or indirectly or by impeding any local or public authority in its attempts to comply with EU law)”,


“did not follow the procedures set out in this Part or in the warning notice before giving the financial sanction notice”,


“ought to have exercised any discretion under this Part or the warning notice differently”.

The new clause requires the independent review panel to determine the validity of the grounds of the referral and to provide a copy of its determination to the Minister who issued the EU financial sanction notice and the local or public body which received it. These amendments stem from the significant amount of concern, already mentioned, that has arisen from the provisions in this part of the Bill since it was first published last December. Throughout the Bill’s passage these concerns have been voiced by Parliamentarians of all parties and are shared by the Mayor of London, the London Assembly, London Councils and the Local Government Association.

Understandably, the main area of concern has focused on the ability of a Minister to pass on a fine without any form of judicial or independent oversight. The need for independent oversight is particularly vital when one considers the complexity of the factors leading up to any infraction, not least in the area of air quality—I must here declare an interest in that where my home is in London is the most polluted air in the whole of the UK—and the fact that it is more than likely that one of the parties responsible for any breach will be the Government themselves. This concern was voiced eloquently by Jeremy Smith, barrister and former Secretary-General of the Council of European Municipalities and Regions, in the Municipal Journal in February. He said:

“There is, however, a wider point of concern about Part 2 of the Bill. There is no independent decision-maker. The minister takes the decision to make the local authority pay—even though central government may be partly or largely responsible for the infraction in the first place, for example, through delayed action, poor drafting, or for myriad other reasons. This means the minister may be simultaneously prosecutor, judge, jury—and co-defendant. This is surely not a healthy legal precedent … Therefore, Part 2 of the Localism Bill needs fundamental rethinking. If there is to be a claw-back provision at all, it should not be ministers who decide, since central government is almost certainly an interested party. The process should be for the minister to refer the matter to the High Court, or independent arbitrator, to determine any fair apportionment of the Article 260 fine imposed by the ECJ. The independent decision-maker can then take into account every party’s share of responsibility”.

The complexity of any infraction process and the need for independent oversight has been reinforced by my noble friend Lord Attlee in this House only recently. In response to an Oral Question from the noble Lord, Lord Berkeley, on air quality during the 2012 Games and who is responsible for this matter, my noble friend Lord Attlee responded:

“Everyone is responsible: the Government, the mayor, TfL, LOCOG, the ODA and, most importantly, individuals who make their own transport decisions”.—[Official Report, 23/5/11; col. 1583.]

While I thank my noble friend Lord Attlee for his frank assessment of a complex situation, his words highlight not only the difficulty any Minister would have in apportioning responsibility, and a subsequent fine, for any infraction but also the fact that the Government will, in almost all instances, be an interested party, as I mentioned previously.

It is for this reason that I believe these amendments provide us with a way of building in the safeguards that are so vital to making this part of the Bill acceptable both to your Lordships’ House and the broader community of local government beyond; a community that we must remember has no role in negotiating the very European legislation which could, if these clauses remain unchecked, be presenting them with a very substantial bill. Such a bill would be unpalatable at the best of times, let alone in the current financial landscape.

These amendments do not undermine the principle of this part of the Bill—a principle which was first outlined by the Government in Defra’s consultation documents on the natural environment White Paper last summer—but they begin to build in the safeguards that will be necessary for the relevant stakeholders to have confidence in the process outlined in the policy statement. It is vital, therefore, that local or public authorities have the ability to refer any EU financial sanction notice to an independent review panel; a panel to whose written determination the Minister must have regard. I understand that the Government have already been in discussions with the GLA, the LGA and London Councils on the formulation of a draft policy statement and I hope that these amendments will facilitate further discussions on getting that statement right. It is vital that any arrangements for,

“the appointment, constitution and operation of the independent review panel”,

as provided for by Amendment 111, are sufficiently transparent and robust to garner the support of those who will be subject to this regime. I hope that the Minister will view these amendments as a helpful way of building consensus, something which your Lordships’ House likes to achieve. They are essential if all parties are to have confidence in this part of the Bill.

My Lords, first, I declare an interest as the vice-president of the Local Government Association. I decided to table Amendments 115 and 116 in this group because there is such widespread fear, some of which we have heard about today, in many local authorities and in other areas that this clause relating to the imposition of EU fines could be used as a mechanism for the Government to unload their own responsibilities onto those same authorities. That fear is absolutely understandable.

In her amendments the noble Baroness, Lady Gardner, suggests an ingenious mechanism for operating the system. Yet I am sure she would agree that, like other suggestions that have been made—for example, by the noble Lord, Lord Tope—it is a mechanism and no more. That leaves open the basic principles upon which the mechanism would operate. It is a bit like establishing a court of law without establishing the laws upon which it will base its judgment.

To my mind, those principles are very clear. Some people, in addressing this problem, have been arguing that EU fines should never be payable by local authorities. I find that a rather strange argument. In so far as it is prompted by the fear that a future Government might seek to use the legislation to pass their own responsibilities onto local authorities, it is, as I said, understandable but the solution is not the mere deletion of the clause. For local authorities the upside of the Bill is that, at long last, they get the powers that they should have. I totally agree with that but if they have the rights and the powers, they must surely accept the responsibilities that go with them. It must be right that if a local authority does something which, in part or in whole, results in the imposition of an EU fine it should, to that same extent, bear the responsibility. That is all this amendment calls for.

The amendment is merely a clear statement of the principle upon which the mechanisms for deciding the issue will operate. If I might be clear again: it merely says that if it can be proved,

“beyond reasonable doubt that the infraction of EU law has arisen, wholly or in part, as a direct result of the actions of the local … authority … that … authority should be responsible to that extent”.

In terms of proving “beyond reasonable doubt”, would the noble Baroness accept that the arbitration procedure would be a legitimate forum within which that burden of proof would need to be discharged or is she suggesting some other mechanism, including the courts, by which that test would be applied?

I am not suggesting the detailed mechanism now. I agree with the noble Lord that we have to get this clear but I am just trying to clarify the issue. I agree that the phrase “beyond reasonable doubt” actually does no more than bring with it a number of legal arguments and problems. Because this is a difficult thing to prove, if the Minister were to indicate, for example, that she would support such an amendment subject to those words being deleted, I would be happy to omit them.

All I am trying to do with this amendment is to incorporate within the Bill a clear statement of the principle on which I, and I hope others, believe that the justice of the clause should be based. The Minister acknowledged all this in her introductory comments at Second Reading when she said:

“With central direction having been rolled back, it will also be necessary to ensure that local authorities are accountable for all the decisions they take. For example, where authorities fail to act in accordance with EU directives, and where this results in the EU taking infraction proceedings against the United Kingdom, it will be important that culpable local authorities take responsibility for their actions”.—[Official Report, 7/6/11; col. 149.]

That is all I ask. I know the Minister well enough to know that when she says this she means it. All I am asking is, please, put it clearly on the face of the Bill; and if there is a better way that the principle can be enshrined clearly in the legislation, I would be more than happy to be so guided and withdraw this amendment and what it entails. I ask the Minister to give this House a clear undertaking that this fundamental promise of fairness, not merely to local authorities but to everyone in this country, will be clearly enshrined.

My Lords, like many other noble Lords I share the concerns expressed about these provisions. I want to start by asking the Government to give us an absolute assurance that they are confident that legally an EU fine levied on a member state can then be passed on to a local authority. I am not entirely sure that that is the case and would appreciate being given some comfort that it is true. My personal preference would be to see these clauses deleted, because I am not sure that the Government entirely realise what a can of worms they are opening. The noble Baroness, Lady Greengross, talked about where it is clear who is to blame, but EU fines would be levied only for a huge infraction—for example, in connection with air quality. It is almost inconceivable that it would be easy to point a finger and say that a particular person or organisation was responsible.

In fact, a large number of organisations would be responsible. Seeing the noble Lord, Lord Berkley, reminds me of the situation within the rail industry, where there are hundreds of people employed to do nothing but allocate blame. Every time a train is late, they go into a little huddle and work out whether it was the fault of Network Rail or the operator. When I am stuck on a train, I do not much care. This Bill is supposed to connect people with local politicians. We could have a situation where legal arguments drag on for years and cost millions of pounds while arbitrators try to sort out exactly who is responsible for the air quality of London. In that case, who will pay the fine? The public will look with bemusement while this goes on and they will rightly ask, “Why on earth did you not spend that money trying to deal with air quality rather than have this huge legal battle?”. I hope that the Government will think carefully about exactly what they are trying to do here.

Finally, it is a great pity that the whole dialogue and ethos of fining goes against everything we should be trying to do in terms of relationships between central and local government. It should be about looking at the best ways of resolving problems, not about allocating blame in this way and certainly not about allocating fines.

My Lords, a number of us mentioned this matter at Second Reading. One of the longest lists of noble Lords spoke in that debate and addressed the problem of these EU fines. I do not want to repeat what has already been said, but the most important factor we are dealing with is that the Secretary of State is an interested party, whether he or she likes it or not. Therefore, it cannot rest with the Secretary of State to decide how to deal with this EU fine if it emerges. It has never happened yet, but it may one day. It was my noble friend Lord Teverson, I think, who said the Secretary of State was not just judge and jury, but prosecutor and executioner. That puts it extremely well.

I have put my name to the amendments moved and spoken to most eloquently by the noble Baroness, Lady Greengross, and to the longer amendment tabled by my noble friend Lady Gardner. Both recognise, first, that there can be no allocation until there is responsibility, and, secondly, that it cannot be the Minister who does that; there has to be a process of arbitration. We are in the middle of a negotiation outside this House between local authorities, led to some extent by the Greater London Authority and the London boroughs and the department. What we hope to hear from my noble friend on the Front Bench is exactly what is happening there; what stage have these negotiations reached? Are we in the process of getting some sort of reasonable settlement? Clearly in Committee like this we do not take a final decision when we are, as the Romans said, “in medias res”. We are in the middle of the affair, so we need to know what the Government have in mind and what negotiations have been going on, where they have got to and when they expect to reach a reasonable conclusion.

I share the view of the noble Baroness, Lady Greengross, that the solution is not to delete the whole part of the Bill. I heard what my noble friend Lord Tope said on this, but the fact is, bluntly, if there is a serious infraction of a European directive, whether on air quality, water quality or whatever else, is it to fall solely upon taxpayers in general, even if it is perfectly possible to point the finger at the individual authority? At Second Reading, I quoted the example of a directive on waste and the position if a particular local authority was consistently failing to comply. Is it really being seriously suggested that the general body of taxpayers should contribute to the fine?

Of course, the purpose of all these things, as my noble friend Lady Scott said, is to encourage authorities and everybody else to comply with the regulations. That is what is intended but, as I asked in my Second Reading speech, as regards the problem of Heathrow, who is responsible for the air pollution? Noble Lords will have seen reports in the press today of the increase in stacking over Heathrow in the four stacking areas, which is materially adding to air pollution in London. They said it is because Heathrow has been forbidden to expand. I and I think most noble Lords actually support that. Successive Governments and parties have taken that decision, but who is going to pay if it leads to an EU fine? It seems unfair that the whole body of taxpayers should pay.

There has to be some reasonable, fair, proportionate solution and it is my understanding that that is what the discussions are trying to find. I hope that my noble friend on the Front Bench is going to be able to help us. I am sure I am not the only one who received a paper from the Greater London Authority with a document saying “possible policy statement text” with a summary and a number of key principles. It says:

“The use of these provisions must be fair, reasonable and proportionate. There will be an Independent Review Panel. There will be no surprises, and authorities will have opportunities to make representations. Decisions must be evidence-based and transparent”.

It goes on:

“Authorities will not be held responsible for breaches that were not within their power to avert and will only be fined if they have demonstrably caused or contributed to the fine and can afford to pay”.

I find it rather a difficult document to absorb but it sets out a substantial flow chart, which I am sure other noble Lords have seen, that shows the number of stages—opportunities for appeal, occasions when notice must be given and so on—whereby an authority might become liable. We need to know more about this. However, I am inclined to agree with those who say that it is not sufficient simply to send it all away. We must recognise that if there is a fine, there must be some mechanism for dealing with the matter.

I refer briefly to Amendment 117A in my name, which was suggested to me by one of the big water authorities. These are now private undertakings and have expressed concerns as to whether Clause 36 applies to them. It is a question of whether a water authority that was found, for instance, to have breached the urban waste water treatment directive—possibly as a result of the discharge of sewage into the Thames—would be liable to having a fine imposed on it. I understand that the Government are quite sympathetic to this and that it is not the intention that private undertakings should bear any part of this. Part of the reason for this, which was explained to me by the water companies, is that they are already subject to stringent regulatory controls by the Government. If they comply with those controls, they should be within the law. If they fail to comply, it is open to the regulators to take proceedings against them to make them comply.

Thames Water, for example, has long been concerned about the amount of sewage that can periodically overflow and run into the Thames, with discharges the whole way along. As a result, Thames Water is now planning—work is well under way—to establish a long sewage pipeline under the Thames, for most of its length, which will eventually discharge into the sewage treatment plant at Beckton. This is a huge project, which involves lengthy tunnelling and must avoid all the other tunnels that pass under the Thames. Thames Water is doing what it feels is justified. Therefore, it feels it would be a monstrous infraction to have to pay an EU fine because of a breach of the water directive. I hope my noble friend will be able to give me some comfort on that.

My Lords, I support the two amendments in the name of the noble Baroness, Lady Eaton. She has to be at the LGA conference today, which will miss its usual presidential address because I am here. I was much convinced by the noble Lord, Lord Tope, and the noble Baroness, Lady Scott, who said that we should avoid this whole issue. It will get us into an awful lot of trouble and legal hot water. However, I suspect that that will not prove an acceptable course of action and there will have to be an apportionment of blame to decide who the polluter is when the polluter must pay. That leads us to worry that that apportionment of blame cannot be undertaken by the Secretary of State at the Department for Communities and Local Government or Defra. They would be parties to the case and it would offend natural justice if they were the ones to decide how blame should be apportioned.

Therefore, we get into the world of independent arbitration. The amendments in the name of the noble Baroness, Lady Eaton, propose the relatively well trodden path of having the Chartered Institute of Arbitration choose the membership of a body that would do this. The noble Baroness, Lady Gardner of Parkes, suggests the alternative of an independent review panel that would be appointed by the Secretary of State. The danger there is that people would not see a body appointed by the Secretary of State as entirely independent of the Secretary of State. I wonder whether there is a middle position that would satisfy all parties. Would it be possible to set out in the Bill the composition of an independent panel to perform the arbitration role? There might be two appointees of the Secretary of State, two appointees of the Local Government Association and—since London comes into so many of these arguments—one appointee of the Greater London Authority or London councils, with an independent chair appointed by the president of the Chartered Institute of Arbitration. Perhaps having that in the Bill would establish the independence of an arbitration body that everyone could see was not a creature of the Secretary of State. I hope the Minister will be able to give us some satisfaction on this.

I declare an interest as chief executive of London First, a not-for-profit business membership organisation that includes developers, infrastructure providers and others who may have an interest in the practical implications of the Bill.

As a general point of principle, it is unreasonable to transfer the financial sanctions that emanate from European law to a subsidiary body unless that body has been given adequate powers and resources to meet the law and, furthermore, the UK Government have fully discharged their own obligations. Fairly attributing responsibility for who has infringed the law and the extent to which they have done so is not simple, as other noble Lords have already pointed out. Therefore, I support Amendment 117, which would introduce an independent panel to determine such matters. However, the amendment still leaves the final decision about who will pay the fine with the UK Government. I should like to see the powers of the panel taken a step further, with it being given the power to make this decision. The legitimacy to do so would be derived from its independence, which is not something that the UK Government can claim to have.

In London, this has been raised as a matter of particular concern in the context of the air quality and waste water directives by the GLA, local authorities and private organisations that exercise public functions. Who, for example, is to blame for poor air quality at Marble Arch? Is it the GLA, Westminster City Council, taxi firms or the bus companies? These are complex issues that require independent consideration and a panel with the power to determine who should pay the fine.

While on the subject, I am also concerned about the provisions in this part of the Bill that relate to EU fines, which would allow the UK Government to transfer liability to local and public authorities that exercise a public function. This is an issue addressed by the noble Lord, Lord Jenkin, in Amendment 117A, which I support. The problem is that, for the purpose of the Bill, public authorities include private organisations that are already subject to existing government legislation and the power of independent regulators. Private organisations may also be subject to contractual obligations, including financial penalties, for providing services outsourced by the public sector.

In relation to EU fines, private organisations should not be held accountable for something that it is not wholly, or even largely, in their power to achieve. It is the UK Government who negotiate with the EU. It is their role to ensure that EU directives are transposed effectively into UK law, and that the right policy and regulatory framework is in place to achieve that. I would welcome any reassurances that Ministers can provide on that matter.

My Lords, I support all those who have spoken so far to express concern about this group of amendments. I thought it would be interesting to examine just how many of these directives, infraction proceedings, reasoned opinions, pilots and so on are likely to be in place at any one time. I start with those relating to transport. In a Written Answer on 7 June the noble Earl, Lord Attlee, said that 21 transport proceedings under Article 258 are currently unresolved. We do not yet know how many of those will result in a fine. One hopes that very few or none will, but that is the kind of number that we are talking about in transport. Therefore, one could suggest that there would be several hundred across the whole Government. Perhaps the Minister will be able to tell us how many are at stake across government.

The next thing I am concerned about is who this should apply to. The noble Lord, Lord Jenkin, mentioned private water companies and he is quite right. It would be useful to look at some examples. I have two examples. The first is the Channel Tunnel, which I spent 15 years helping to build years ago. The Commission has a pilot, which is the first stage of these proceedings, against the British and French Governments alleging failure to implement European legislation. The two Governments subcontract, if that is the right word, the regulation of the Channel Tunnel to something called the intergovernmental commission, which is actually part of government, which is meant to regulate the infrastructure manager in order to comply with the legislation. In the first stage of that situation, the Government would have to fine themselves. They would then have to fine the intergovernmental commission. Perhaps the intergovernmental commission would then pass it on to the private sector infrastructure manager. It sounds a little complicated to me and I do not think that it would work legally. The same could be applied to Network Rail, which is in the private sector, if the Government decided to follow the line suggested by the noble Baroness, Lady Kramer.

The figures are big. Many speakers have talked about the air pollution problem in London. The figure I have heard from the Commission is that the likely size of fine could be £300 million. Whether it was the present mayor—it could not be the previous mayor even though he came from a different party—the present TfL, the Government or whoever else, £300 million is a very big figure. We should bear this in mind when we talk about how this should be resolved.

The other example I have is an interesting one because it applies to most local authorities in this country. It is the first stage in the complaint from the Commission that local authorities are not complying with the green vehicle procurement rules. The directive—2009/33—came into force on 4 December 2010 and it,

“requires the public sector to use its purchasing power to promote clean and energy-efficient vehicles. Every time they purchase a vehicle for public transport services, they must take into account energy consumption”,

and so on. The obligation extends to all purchases of road transport vehicles by public authorities or transport operators. There are many experts in your Lordships’ House who know how many local authorities there are in this country—in England anyway, and Wales if Wales is included in it. However, working out a £300 million or £200 million fine between all those local authorities and then allowing each one to take this arbitration route, which I hope will be implemented unless the clause is lost completely, is just unthinkable.

I shall be interested to hear from the Minister how the Government will deal with that kind of failure to comply with the green vehicle procurement rules which apply to every local authority. How do they propose to apportion the fine even before it gets to arbitration? How much would this arbitration cost each time it was used? We all know who is going to pay for it. It will be the taxpayer in the end or the local authority ratepayer, depending on whose side you are on or who gets legal aid. With this kind of enormous scope for potential failure, before one starts apportioning blame, the whole thing should be scrapped.

My Lords, as this is the first time I have spoken in Committee, I should declare that I am a landlord, a landowner, I have been a councillor in Norfolk for a number of years, and I am chairman of my parish.

When I first saw these provisions, I did wonder who on earth had dreamt them up. It is all too easy and tempting to blame Brussels, but in this instance, I do not think we can. I do not know of any other EU country that is bringing in similar provisions. Here I am confused. If it came from the British Government, which I think it did, why does it apply only to English councils? Why the urgency? What have English councils done, or rather, not done, that merits these provisions?

We all know that Britain gold-plates all EU directives so that Britain complies, or rather, overcomplies, with all directives, unlike some member states. Why are these provisions necessary? After all, Britain has never been fined by the EU. Are the Government worried that we are about to be fined? If so, given that we gold-plate all EU directives, it must be that we face a possible fine for something we have signed up to that has been impossible to deliver. In that case, why penalise local authorities? After all, they were not party to the negotiations with the EC. This makes me wonder whether a fine will apply to things that have happened, or rather, have not happened, in the past. Will these fines be retrospective or will they apply only to future events and future non-compliance? The EU treaty quite clearly states that only Governments are liable for any fines. Here we have provisions that allow the Secretary of State to lay off the blame and the fine onto local authorities.

If the Government persist with Part 2 of the Bill—I hope that they do not—and they are successful in pinning the blame on local authorities, the big question is how local authorities are going to find the money. We know that local government finance is already under tremendous strain. To have to pay an EU fine might mean cutting front-line services. That cannot be the right answer and I do not believe that would be acceptable. After all, local authorities already have big enough trouble cutting their budgets. To do so again to pay an EU fine would be untenable.

How are local authorities going to find this extra money to pay the fine? They could increase council tax, but again that would be unacceptable. Why should households be penalised for something that is totally out of their control? Anyway, any increase in council tax can now be challenged. The only other source of income that local authorities have is from the central government grants. That would be like robbing Peter to pay Paul. There are provisions in the Bill that require the Minister to take account of the effect of any fine on a local authority’s finances. So presumably, if a local authority is strapped for cash—and they all are—then no doubt central government will end up picking up the tab. Here we have a situation where the Government pass on their fine from the EU to local authorities which they, the Government, may well end up having to fund themselves.

Why bother with all these procedures: the Secretary of State publishing a statement of policy and then determining how the amounts are to be paid; apportioning the blame across various local authorities; giving warning notices; issuing a final EU financial sanction notice; the appeal process; the protracted legal battles between local authorities and the Government; and perhaps an independent arbitration system to ensure the Minister is not, as other noble Lords have said, judge, jury, executioner and co-defendant? There is all this protracted bureaucracy and legal wrangling when, at the end of the day, the final bill will probably be picked up by central government anyway. All because in the past the Government have signed up to something with the EU that they cannot deliver, because if they could deliver, we would already have gold-plated regulations.

Therefore, rather than squabbling among ourselves, would it not be better if the Government concentrated their efforts and firepower on challenging any fine, if and when one is imposed? They should renegotiate with Brussels, if necessary, and, in future, ensure that Britain does not sign up to anything that is not in our interests or that we cannot deliver. As things stand, I cannot see the point of all this. It is a clear case of cutting off one’s nose to spite one’s face.

My Lords, I wanted to speak briefly to Amendment 110 and to make a few other comments, but it would be a brave Ulsterman who would take on the noble Lord, Lord Wigley, on a Welsh amendment. However, I assure him that I want merely to talk about the principle here. Although the Bill does not apply specifically to Northern Ireland, the Northern Ireland Local Government Association has asked me to raise some matters of principle, because if the principle is established in the Bill that local authorities will or could be liable for EU fines, sooner or later it will have national significance. While some EU directives may often have specific geographical implications, others have wider national implications.

I do not have a problem with the principle that the polluter pays, but it has to be understood that local government throughout the United Kingdom is not a universal picture. Local authorities in Northern Ireland have far fewer powers than those in the rest of the United Kingdom. They also raise most of their own money—more than 80 per cent—by rates. Consequently, they do not have a large central government grant, as is the case in England. Therefore, it is not possible for the Government simply to reduce the grant that local authorities in Northern Ireland receive in order to take the money off them, because they do not get it in the first place. If you impose a fine on a Northern Ireland local authority, you impose it directly on the ratepayer. That has to be understood.

The other matter is that the powers of local councils vary considerably. The Department of the Environment in Northern Ireland is largely responsible for local government, but other groups and public bodies will perhaps share policy implementation with local councils. Air and water pollution have been talked about. Local councils obviously have or could have an environmental health role in this, but other public bodies might be responsible for other aspects, including water pollution, sewage and so on.

The Northern Ireland Local Government Association, in consultation with other local government bodies, including the LGA, has expressed concern—not only because they have not been consulted about the measures, but because, although the Bill does not directly affect them at present, they believe that sooner or later it will. That is because EU fines have a national implication, as well as a local one. It was, I think, the noble Lord, Lord Berkeley, who said that he was not aware that EU fines had started to be imposed. I can assure him that they have, because I know, at home, our Department of Agriculture is being fined very heavily over issues concerning mapping. Grants were being distributed on the basis of maps, and now we have armies of planners who, as a result of not having much to do during the recession, are poring over aerial maps, because in the designation of fields, the boundaries of areas of rough ground may have become unclear. Brussels is now saying that people have been double claiming and doing all sorts of things. I can assure the noble Lord that fines are being imposed, exemplary damages are being applied, and the fines are vastly in excess of the amount of money that may have been inappropriately spent or given to a particular claimant. The Government are being fined millions of pounds above that. We are talking about substantial issues.

I should like to say that it was not me who suggested that the British Government had not been fined.

I beg your pardon; I may have picked up a comment from someone else.

When the Government are finalising what they are going to do on this issue, they need to take into account the significant regional disparities. One understands that the Government are trying to establish the point that the polluter pays. However, the big issue with all this is that we send representatives to Brussels—and I do not know whether the late-night hospitality and the all-night sessions are to blame—decisions can be forced through at 4 am and our representatives keep putting their hands up to approve them. Then, five or six years later, they blame Brussels for enforcing those decisions when it is they who have agreed to them. I have to say: beware the late-night hospitality. We should pick representatives who are good at doing this at night. In a negotiation, I fear that the officials will know full well that a certain Minister has to get away to an event somewhere else, perhaps at 1 pm the following day, and know that if they push for a decision at 3 am or 4 am, the Minister will put their hands up and agree to anything. I seriously suggest that we be careful what we agree to, because it comes back to haunt us many years later.

I accept that the provision in the Bill does not apply to Northern Ireland, and it is not entirely clear as to whether it applies even to Wales. The Minister may answer that this is an England-only Bill, but while local government is a reserved or devolved matter in certain areas, EU fines are, of course, a national issue or a reserved matter. The interface where these issues collide is not entirely clear to me, and I sincerely hope that the noble Baroness will take this into account when she replies.

My Lords, it is probably rash of me to intervene in a debate that has so far been dominated largely by great gurus of local government, another of whom is yet to speak. However, it must have become obvious, at least to my Front Bench, that I am one of those who become more rash, rather than more cautious, as the years advance. I have endlessly declared my wife as an interest, in respect of Braintree District Council. I hasten to add that she has not told me to say anything about this issue. The council is well conducted—and I say that not just because she told me that. However, I support the noble Lord, Lord Tope, and say that the concern is confined not just to his Benches. That has admirably been made clear, but having geared myself up to speak, I decided that I would do so—albeit very briefly.

First, the noble Lord, Lord Tope, was right to say that this issue should have been discussed with local authorities, not just bounced out with the publication of the Bill. Secondly, I have every sympathy with what my noble friend Lord Jenkin said—whether or not something like this survives, the Secretary of State should not be judge, jury, prosecutor and executioner. That leads to my interest in some of the amendments in the group, including that of my noble friend Lady Gardner of Parkes. I noted that the noble Lord, Lord Best, who knows as much about all this as anyone, said—although he did not use this phrase—that the Government were opening a can of worms. The whole of the rest of the debate has demonstrated that it is indeed a can of worms, not least in the speeches of my noble friend Lord Cathcart and the noble Lord, Lord Empey. It may be too late to put the lid back on it, but my noble friends ought to contemplate whether they can squeeze it down a bit or at least make it a more palatable lot of worms.

I do not have much more to say, but I have two questions that link with the points made in recent speeches. I want to put them very directly. First, as was initially raised in uncertain terms by the noble Lord, Lord Wigley, just where does this stand in relation to the devolved Administrations? Since the noble Lord spoke, I have checked Clause 213 on the extent of the Bill. If I read that correctly, this lot does extend to Wales; but it does not extend to Scotland and, as we have just heard, it does not extend to Northern Ireland. Therefore a fine from the European Union would be imposed on the United Kingdom Government. We are the members of the European Union, not Scotland, even if it would like to be, or Wales, even if it would like to be, or Northern Ireland—I do not know whether it would or not. That means that in certain circumstances the United Kingdom Government could be fined, but if the fine related to a local authority in Scotland, the European Union could do nothing about it. Only an English council could have a knock-on fine under these proposals. If I got that wrong, I would be glad to be told; but that appears to me to be the meaning of the Bill and I do not think it is satisfactory.

Secondly, as was touched on by my noble friend Lord Cathcart, is this or is this not retrospective? I could just about understand it if councils knew what they were getting into when they made a decision that might lead to this risk. However, unless I have read the Bill wrongly, this is a backward-looking proposal. A fine could be imposed that related to something that had already happened, in circumstances in which a local authority had no reason to suppose that there would be a penalty. Most of us would regard that situation as deeply unsatisfactory, and I do not regard it as satisfactory on anything that I have heard today.

From what the noble Lord, Lord Best, said the other day, we know that this clause was one of the top three targets of the Local Government Association, which is why he is here today, no doubt. He was very kind, and rightly so, to my noble friend Lady Hanham on the Front Bench for having been so conciliatory on its other two main targets—one was the issue of mayors, the other I cannot remember. I urge my noble friend to be conciliatory on this one as well.

My Lords, I am afraid that I am a local government novice rather than a local government guru. However, I want to add a few words because in some of the last speeches there was a dangerous drift, I thought, towards implying that this was all the fault of Brussels and I think that has to be countered quickly. As a Londoner, I am very grateful that there is an EU air quality directive. The Mayor of London and his draft air quality strategy assess that PM10 particulates play a part in the premature deaths of more than 4,000 people per year here in London. In fact, if you look at the impact on heart disease, it is probably closer to 8,000 people. If we had that number of premature deaths from food poisoning, I would guess that there would be a very big response. The fact that it comes from air poisoning seems to have drifted past an awful lot of British Governments. As a Londoner, I suspect that many of us are reasonably concerned about that.

I agree with all the arguments that the Government cannot possibly turn around and pass these fines off to other authorities to act as judge and jury. That is against natural justice and it is important that we say so. However, this whole conversation that we have had today has made it clear that arbitration is complex, expensive and protracted; the wisdom of Solomon would rarely be adequate to make sure that proper allocation followed. In those circumstances, this strikes me as a classic piece of the gold-plating that we mention when we talk about how our country handles directives from Brussels. Going back to the original proposition, to simply eliminate this clause would be the far cleaner way in which to act. The Government have often said that they do not expect us to ever get any EU fines, in which case the argument is even stronger for simply eliminating all of this rather than following the gold-plating strategy that seems to be under consideration.

My Lords, I speak to Amendments 117ZA and 117ZB, to Amendments 110A and 114A, to which we have added our name, and to the other amendments in this group. This has been a fascinating debate but there seems to be one very clear strand that I think that pretty much everyone who has spoken has signed up to, which is that, if these provisions proceed, the Secretary of State cannot be the final decision-maker in respect of these fines. I am on the side of those who hope that these provisions go in their entirety. I will just touch upon the point raised by the noble Lords, Lord Wigley, Lord Empey and Lord Newton. According to the Notes to the Bill, my understanding is that these provisions relate to England only, so it seems to me entirely reasonable to ask the Minister whether there is going to be any proposition that will extend them somehow to Wales, Northern Ireland and Scotland. If the answer is no, then I say good luck to Wales, Northern Ireland and Scotland. Nevertheless, how do you address the point that the noble Lord, Lord Newton, made, that you could have an EU penalty that, you might argue, is the responsibility of a number of local authorities, some in England, some not, so that under these provisions an English authority would be forced to cough up and authorities in Wales and Northern Ireland would not have to? If that is the proposition, that is simply a nonsense and cannot be right.

If I may say to the noble Earl, Lord Cathcart, I think this issue around gold-plating of EU directives is, frankly, a myth. Every time an exercise is done to try to identify where that happens, the answer pretty much always comes back that it is very difficult to identify. I agree with the noble Baroness, Lady Kramer, that this is not about laying blame at the feet of Brussels. As I said a moment ago, I am on the side of those who believe that we should remove these provisions from the Bill in their entirety, along with the noble Lord, Lord Tope, the noble Baroness, Lady Scott, and others, for the reasons that the LGA touched upon; namely, that they are,

“unfair, unworkable, dangerous for local economies, and unconstitutional”.

The noble Lord, Lord Tope, spoke to that, and other noble Lords made the point that it is the UK Government who have EU obligations, not local authorities. If there is an issue about recalcitrant local authorities, surely it has to be addressed by more effective regulation by powers of intervention that central government could take, not by this nonsense of trying to apportion fines on some basis with all the complexities and problems that noble Lords have identified today.

My understanding is—and the LGA briefing touches upon this—that the concerns are particularly around air quality, public procurement, services and waste. As a start, can the Minister confirm that those are the particular areas that the Government are concerned with? Can he also tell us at what stage potential infraction proceedings have reached over these various areas or others that might be under way? My noble friend Lord Berkeley gives instances of several hundred in relation to transport. If we cannot get these clauses out of the Bill, and if we are to try to work out the best process to deal with this, it is worth reflecting on what I understand to be the process leading to infraction proceedings and the raising of a penalty.

Looking at the more formal arrangements in Articles 258 and 260, it has to start with an informal letter of inquiry from the Commission, then a formal letter presenting an opportunity to respond to an alleged breach of Community law, followed by reasoned opinion, which is the 41 notice from the Commission advising a member state that it is in breach of its obligations, followed, if there is no satisfactory response, by an application of the Commission to the ECJ for a formal ruling.

Following that, if there is a determination that there is a breach, there will be a letter requesting information on the steps taken to put an end to the infringement. If there is failure to comply, there will be formal notice that the member state has failed to comply, following by a reasoned opinion, which is the formal determination by the Commission that the member state has failed to comply with the ECJ judgment, followed by a financial penalty.

Therefore, the process is extensive, and there are a number of occasions when member states can challenge the existence of a breach or attempt to rectify it. Indeed, is it not the case that, even before these processes occur, there will in practice be opportunities to discuss with officials any suggested breaches of the treaty, with an iterative process to try to reconcile matters? This can extend over many months, if not years. Is it not the case that they are not clear-cut issues and that compromises may have to be reached along the way? That is why it seems fundamentally unacceptable that under the Government’s proposals an authority will be formally engaged with an EU financial sanction only when it has become a reality.

I shall run through some of the amendments in a moment. I do not think that any of them separately encompasses what we now consider to be a robust fallback position in removing these provisions, but I believe that in aggregate they present a cocktail of suggestions which I hope the Minister will digest, as he has time to do between now and Report.

In our view, any retention of these provisions—our preference is for them to be removed and we will not give up on that yet—must include safeguards which make it clear that the consequences of a failure of transposition of directives into UK law can never be visited on local authorities. There must be a requirement for the Government to use all the powers at their disposal to ensure compliance with ECJ rulings, whether they are powers relating to regulation or powers of intervention. Perhaps on that latter point the Minister would write to me setting out what powers the Government have over the various areas of concern and the extent to which they have been deployed to date or are planned to be deployed to avoid or mitigate any EU breach.

There must be a statutory opportunity for authorities whose actions or inactions are considered by Ministers to have potentially contributed to a breach to be notified at an early point, and certainly before the start of the processes set out in Article 258, with a right for such authorities to be kept up to date with developments and negotiations, and to be able to make representations to government about the conduct of such negotiations and to be given an opportunity to rectify any contributory breaches. There must be protections for authorities which do not wilfully and deliberately set aside a power or responsibility and where they have taken all reasonable steps to bring about compliance. There must also be a right for authorities affected to have access to some form of independent review, judicial or otherwise—and there seems to be strong support for that—which assesses not only whether the proposed levying of the fine received by the UK is fair but whether the processes and engagement leading up to the end result have been appropriate and consistent with the principles that I have set out.

The collection of amendments before us covers much of that ground and, as I said, provides some of the key ingredients for a fallback position. While we will continue to argue for the removal of these clauses, we will consider supporting a fallback position if it is sufficiently robust. The onus is now on the Minister and his colleagues to take note of the mind of the Committee, although I suggest that it is pretty clear. I believe that he has a decent time to do that before Report and I urge him to do so.

My Lords, I entirely endorse the observations made by my noble friend Lord McKenzie. I was happy to ascribe my name to the amendments moved by the noble Baroness, Lady Eaton, and indeed I congratulate her on tabling them. I think the Committee would wish to join me in congratulating her on her tenure of office, which ends this week, as chairman of the Local Government Association. She has been a very distinguished representative of local government. She has been quite unafraid to express the views of the local government family to Governments of all three political colours over the past few years, and we look forward to her playing an even greater role in your Lordships House than she has felt able to pursue so far because of a slight feeling of a conflicted position.

My noble friend Lord McKenzie referred to the position of Wales and Northern Ireland, and he seems to be absolutely right. I obviously have every sympathy with the noble Lords, Lord Wigley and Lord Empey. One would not wish to see these fines imposed on either Wales or Northern Ireland, or indeed on Scotland. However, it would be ridiculous if they were excluded from and England were included in certain situations. For example, if the Tweed or the Severn were polluted from the north or the west of the relevant borders, the Welsh or Scottish authority involved might be exempt and an English authority held liable. That would seem quite absurd.

My noble friend Lord Berkeley and the noble Earl, Lord Cathcart, asked about the number of potential breaches. Noble Lords may recall—although probably not—that at Second Reading I referred to a Written Question and Answer in relation to this matter. The Question was what estimate the Government have made,

“of the potential liability of the United Kingdom to pay fines to the European Union; and what proportion they anticipate would fall to be paid by local authorities under the provisions of the Localism Bill”.

The Answer from the noble Lord, Lord Sassoon, was:

“The United Kingdom has never incurred a financial penalty under Article 260 of the Treaty on the Functioning of the European Union”—

or under the former articles—

“and no such fines are anticipated”.

I suggested at Second Reading that it was a little curious that in that case there should be provision in the Bill at all. However, the Answer went on:

“In the event of such a financial penalty, it is not possible to anticipate what proportion would fall to local authorities under powers proposed in the Localism Bill”.—[Official Report, 24/5/11; col. WA 419.]

Therefore, it could be a very large or a very small sum. In that context, I ask the Minister to indicate whether it is correct, as the Local Government Association believes, that the Government are considering fines relating to four specific EU laws so that councils could be forced to pay up to £1.2 billion in fines. It is alleged that the UK is facing a potential £300 million EU fine for breaches of air-quality targets. Is that correct?

Furthermore, a slightly worrying feature of the fines proposal is the reference to the breach being “caused or contributed to” by a local authority. A contribution can go from a small proportion to a very large one. What is the Government’s thinking about the situation that would arise if it were not wholly the responsibility of an individual local authority or a number of local authorities? In those circumstances, how would the fine be apportioned and who would determine it? Presumably, on the basis of the Bill as it stands, it would be the Secretary of State.

I recall money being lost to the United Kingdom, and particularly to the region from which the noble Lord, Lord Shipley, and I come, not through the fault of local authorities but through the negligence of civil servants who failed, for example—this was in the days of the previous Government—to transmit bids for EU funding in sufficient time for the money to be allocated and received. The money went missing but unfortunately there was no question of the local authorities fining the Government for that negligence. It seems that this is a one-way street. When it comes to money being lost to the UK, only local authorities seem to be scheduled to be in the firing line.

There are real problems here with the processes. The noble Earl, Lord Cathcart, talked about Ministers signing up successive Governments to regulations, and he was right to say that. In particular, Governments have signed up to these regulations without consulting local government, upon which under the Bill and indeed perhaps more generally responsibilities would lie. The position now seems to be that if the Bill goes through unamended local authorities will be faced with decisions made on the basis of targets, deadlines and laws dating back more than 10 years—again without any consultation along the way.

It is suggested that local authorities have defaulted on EU obligations on four directives: air quality, public procurement, services and the waste framework. Ministers have been asked to substantiate these claims but they have not provided the evidence. Perhaps the noble Lord would indicate what evidence there is for any such alleged breaches. In particular, there is the interesting example of Ministers apparently having claimed that 23 waste planning authorities have failed to submit their waste plans by an informal deadline between the Government and the European Commission, which could incur—allegedly—an EU fine.

The Government apparently failed to communicate the importance of that deadline to the councils in question or its link to the directive. It was eventually communicated at a workshop—a workshop, not in any kind of directive or guidance. It is not in European Union law or in the domestic legislation that implements it. The only official communication went out six months after the deadline had passed. In these circumstances it would be ridiculous for a fine to be levied on authorities if the Government were to seek to enforce it.

Others of your Lordships, including the noble Baroness, Lady Kramer, have referred to the difficulties particularly of air quality. Indeed, this was the subject of a review commissioned by Defra that was published in March 2010 when mandatory targets on councils were being considered. The Defra review said:

“Giving authorities responsibility for achieving a part of the target … would be impossible to monitor and enforce; there would be no way of deciding conclusively the causes of any change to”—

pollution concentrations—

“at the specified location”.

That is fairly obvious but it does not seem to be reflected in the Government’s position. The problem is that there are a number of draft laws in the pipeline that could affect local government, and again I hope that the Minister will confirm when these are being considered this time around, as opposed to what has happened under previous Administrations, and that there will be adequate consultation.

Finally, one matter worries me slightly. The noble Baroness, Lady Scott, referred to passing on the fines. It may be that if the amendments succeed either the whole clause will be struck out or there will be an arbitration procedure. I am not normally paranoid, but sometimes in local government one feels that successive Governments, particularly their civil servants, are out to get us—perhaps the Treasury in any case is out to get us. If the situation arises in which the fines are struck out, I wonder whether it would not occur to some bright civil servant that the net cost to the Government of paying EU fines might not somehow be deducted from the revenue support grant that goes to local government, which would perhaps help individual authorities that might otherwise be made liable but would not help the totality of the local government family.

I would very much welcome an assurance from the Minister, if he is able to give it either today or subsequently, that, in the event of the fines not being levied on individual authorities but having to be paid by the UK, there is no intention to recoup from local government in this indirect method. I have no doubt that the noble Earl would not countenance it but there may be others around Whitehall who would, so it would be good to have some assurance that that would not follow.

My Lords, I thank the Committee for the time, effort and thought that has been put into the amendments on these clauses. I particularly welcome some of the sensible comments of the noble Lord, Lord McKenzie of Luton, after he gave me his fairly firm strictures. We welcome such constructive contributions. I have taken on board the strictures of the Committee and I accept that there is much more that we need to do on these clauses. I also believe that the House is well placed to find a solution. Given the significance of these provisions, I intend to give a full reply. However, I will avoid getting involved in a debate about the EU or the desirability of any particular directive. On any relevant points that I do not answer, I will write in due course.

The basic principle is, I think, sound. The aim is to encourage authorities not to incur fines for the UK in the first place and, in the unprecedented circumstances that the UK is fined for an infraction, to achieve compliance quickly. We do not want to pay escalating fines to Europe. As many noble Lords have pointed out, we have never incurred fines for an infraction and do not see these provisions as a prelude to being more relaxed about infraction proceedings or fines. My noble friend Lord Tope, in his speech, accepts that it is very unlikely that EU fines will be incurred. The whole point of the policy is to avoid the fines in the first place.

My noble friends Lady Gardner of Parkes and Lady Scott of Needham Market, the noble Baroness, Lady Valentine, and others raised the issue of the air quality directive and the difficulty of apportioning liability to certain types of directive. The amendment of my noble friend Lord Tope deals with this problem in conjunction with the amendment of my noble friend Lady Gardner, although I have to caution that it may have unintended consequences in this respect, so further consideration is required. The noble Lord, Lord McKenzie, asked whether these clauses are aimed at just a few specific EU directives. I go back to my point that that is not the case; they are about avoiding problems in the first place.

I understand that point. My specific question was whether those four areas that I identified are of particular concern at the moment, and in respect of those areas, how far, if at all, the early stages of infraction proceedings have got.

My Lords, I think I will be able to give the noble Lord some comfort later in my speech. The noble Lord, Lord Berkeley, rather exaggerated the spectre and size of related fines. He will recognise that most EU states are experiencing difficulties with the air quality directive, particularly in respect of NOx, but I will not weary the Committee with the technical reasons for that.

We should focus much more on preventing fines. I am therefore very interested in the amendment proposed by my noble friend Lord Tope and by the noble Lord, Lord McKenzie of Luton, on the Benches opposite. Taken together, as the noble Lord, Lord McKenzie, suggested, these would target and give a very clear warning only to authorities that are putting us at risk of a fine from Europe and just for the specific breach in question. That also deals with the point raised by the noble Lord, Lord Berkeley, about the potentially very large numbers. Actually, the numbers directed would be very small. This would involve a parliamentary process. The issues or any culpability could be clearly debated here and in the other place. In considering the merits of these amendments, we need to ask whether naming specific authorities could result in a greater desire on their part to comply and avoid any fine. This, as the Committee is aware, is the Government’s overriding aim.

Listening to the debate it seems to me that noble Lords believe that a particular advantage of the amendments is that prior to a directive being designated, all concerned can concentrate on solving the problem rather than taking legal advice and protecting their position. That deals with the point raised by my noble friend Lady Scott of Needham Market. In other words, the meter is not running until the designation order has been approved. As such, noble Lords may consider that these amendments deal with the issue of retrospectivity raised by my noble friends Lord Cathcart and Lord Newton of Braintree and the noble Lord, Lord McKenzie. However, I make it clear that the Bill’s clauses would have to apply to existing directives, not just new ones.

We must also ensure that the mechanism used as a last resort to recoup any fines works, otherwise there will be no incentive to avoid a fine.

My noble friend has been very reassuring on general retrospection and I think I understand the point about existing directives, but in respect of an existing directive, would the potential fine apply only from the date of the designation under an amendment along the lines that he appears to be discussing, because if it applies backwards it remains retrospective?

My Lords, I believe that that is the intention of my noble friend’s amendment; the meter would run only from when the directive was designated.

The process must be fair, reasonable and proportionate. I therefore warmly welcome the draft policy statement from the Greater London Authority, mentioned by my noble friend Lord Jenkin, arising from discussions with the Government. A copy has been placed in the Library and I would welcome any comments on it. I was also very interested to see the amendments of my noble friend Lady Gardner of Parkes.

I am sorry; my noble friend is clearly doing his best, but the draft statement was obviously drawn up after the discussions had got so far with the department. Are those discussions still going on?

My Lords, I will be delighted to deal with the noble Lord’s point later in my speech.

I was very interested to see the amendments tabled in the name of my noble friend Lady Gardner of Parkes. In considering the merits of these, we would need to be certain that any panel would provide additional value on top of the existing availability of judicial review. Amendment 114A, tabled by my noble friends Lady Eaton and Lord Tope and the noble Lords, Lord Beecham and Lord McKenzie, would take this a step further. I do not feel, however, that arbitration is appropriate. This is not just about deciding between disputing parties on a breach of contract; it is a complex matter that involves myriad decisions, including on the apportionment of resources and most importantly on the ability to pay. It is not appropriate for a single unelected individual to make such decisions, any more than it would be for them to decide the local government finance settlement.

The noble Lord, Lord Beecham, made a point about the revenue support grant. I go back to my point that it is not about raising money; it is about avoiding the fines in the first place.

The Minister mentioned ability to pay. If a council has no money, does that mean that the Government will not have to pay?

Not quite, my Lords, but the decision-making process will have to ensure that what the council pays is affordable. It may hurt them, but there is no intention to bankrupt a local authority, which I think would concern noble Lords. There has to be an affordable fine. However, if an amendment similar to the one tabled by my noble friend Lady Gardner of Parkes were put in place, it would be hard for Ministers to ignore its advice without making themselves vulnerable to judicial review. I am very grateful for the clear way in which my noble friend explained her amendments.

I welcome the tone of the speech by the noble Baroness, Lady Greengross, and I can confirm that we will make clear in the policy statement our commitments to the principles of fairness, reasonableness, proportionality and no surprises. This is why I find the draft document from the Greater London Authority so helpful. Unfortunately, the amendment, which seeks to put tougher tests on culpability by using the criminal standard of law, causes some real practical difficulties. Unfortunately, the European Court of Justice proceedings are based on civil standards of proof. Rather than rerunning the European procedures here in the UK to the higher test, it is better to use a court’s finding to focus on quickly achieving compliance.

My noble friend Lord Jenkin of Roding seeks to ensure that the Government cannot designate any private company. I agree that we should not penalise companies for their private services and functions. I believe that this amendment needs further consideration. We need to ensure clarity as to who is to be covered by these provisions.

Finally, to the noble Lord, Lord Wigley, whose amendment we are debating, I suggest that there is no need for his amendment. Clause 36 sets out that the powers apply only to English authorities exercising public functions in England.

As I flagged up at Second Reading on 7 June, the Minister in another place said that this is likely to come into force in other parts of the United Kingdom. If that is the Government’s intention—and as the noble Lords, Lord Newton and Lord Empey, and others have said, it would have implications if it did not and it has implications if it does—at what stage would we know conclusively that this part of the Bill was not going to be changed to include us? If it is to be changed, can it be changed in time for us to table amendments as necessary on Report to deal with the consequences of this being applicable to Wales, Scotland or Northern Ireland?

I am coming to that. The noble Lord, Lord Wigley, asked whether the Government will give an assurance that the UK Government would not stop the Welsh Assembly Government from negotiating with the EU. The UK Government recognise that the devolved Administrations will have an interest in European policy-making in relation to devolved matters, notably when action by them may be required for implementation. The UK Government will involve the devolved Administrations as fully as possible in discussions about the formulation of the UK’s policy position on all EU and international matters that touch on devolved matters.

The noble Baroness, Lady Scott of Needham Market, asked whether we are confident of our legal position. Parliament is sovereign and can give powers to Ministers to pass on EU fines in accordance with the law as passed by Parliament.

The noble Lord, Lord Berkeley, asked about the number of transport directives in difficulty. I cannot confirm his numbers. However, he will be aware that many problems are relatively minor and easily dealt with and some of these matters are progressing faster than others.

My noble friend Lord Cathcart talked about gold-plating, but we cannot be infracted for doing additional things. He also made the important point, which the noble Lord, Lord Berkeley, touched on, about the effect of any fines. As I said previously, the Secretary of State has to take into consideration the effect on a local authority of fines, and any arrangements that were put in place as a result of the solution that we devise would obviously have to have that effect.

My noble friend Lord Newton of Braintree and the noble Lords, Lord McKenzie and Lord Wigley, asked about the extent of these clauses. England and Wales are one legal jurisdiction, which is why the extent is England and Wales. However, the application of the clauses is to English authorities, but we are in discussions with devolved Administrations about how the clauses may be relevant to their areas for reserved matters, and we will be prepared to look at their requests very carefully indeed.

I had actually decided not to intervene, because it seemed almost unfair. There is nothing more certain, I would judge, than that if the UK Government approach the Scottish Government—I do not know about the Welsh—and say, “We have this policy and if we get a fine that applies either north of the border or across the border, will you pay your share?”, they will tell us to get stuffed.

My noble friend Lord Jenkin asked where we are in negotiations with outside bodies. He is of course, correct in what he surmises. However, your Lordships and another place will have to decide what is to be done in the end. In conclusion, I would like the opportunity to consider, in consultation with ministerial colleagues, those suggested amendments which could provide a way forward and a solution.

While I am clear that putting the decision-making in the hands of a single unelected individual is not helpful, I am very willing to take away the other suggestions from noble Lords. I believe that together we can develop good solutions in time for Report. While I cannot accept a veto, I am very happy to continue discussions with outside bodies and noble Lords in order to develop this good solution before Report. In the light of what I have said, I hope that the noble Lord will feel able to withdraw his amendment.

Will the Minister explain his last reference to the different types of organisations that might be covered, which the noble Lord, Lord Jenkin, and I raised, be they water companies or railway companies? Is the Minister going to write to noble Lords who have spoken with more detailed responses to all these things, or is he going to recommend that we put down amendments on Report about which should be covered and which should not?

Noble Lords will be grateful for the response that the Minister has made because he has indicated that this is very much open and there is scope for a lot of further detailed discussion. Can I be clear that included in that discussion will be issues around the point at which local authorities will be notified of possible infraction proceedings and the opportunity to engage in the iterative, informal discussions and negotiations that go on before we get to an Article 258 situation? Any review and assessment of the outcome would cover that early engagement and its legitimacy as well as just looking at the divvying up of the fine that may result at the end of the day. Can we have the opportunity to engage with the Minister along the way so that we will have no surprises when we come to Report?

My Lords, the noble Lord will know that infraction proceedings are a very long process, even after the Lisbon process, which, I understand, makes it a little shorter. The designation procedure suggested by the noble Lord, Lord Tope, would provide a very clear signal. One of the questions that my noble friend would have to answer—and we can do this offline—is: at what point would you designate a local authority? I would suggest that it would be after you get to a difficult stage in negotiations with the EU. I would be very happy to discuss that point with the noble Lord.

I know the Minister has gone through a lot this evening on this. It is not just a question of designating so that you know that you are potentially in the frame; it is an opportunity for a local authority to engage with the Government, who are obviously responsible for the negotiations. Since it is a negotiation, and a deal is often struck at the end of the day, where that deal is struck could affect a particular local authority or group of local authorities in ways that are different from the way others are affected. Therefore, that chance to impact on that process early seems vital if people are going to be assured that there is a reasonable process going forward. It is not just being designated; it is being designated at a point where you can engage with the ongoing pre-formal process of the infraction proceedings.

My Lords, the noble Lord makes an important point, but the amendment tabled by the noble Lord, Lord Tope, deals with it because until the directive has been designated, the Government can deal and negotiate freely with the Commission and with the affected local authorities to try to find a solution to the problem. Most of the time, we will be able to achieve compliance relatively easily. I hope we will never get to a situation where we cannot achieve compliance.

Before the noble Lord, Lord Wigley, tells us what he is going to do with his amendment, which, as we were reminded just now, is the one we are supposed to be debating, I thank the Minister for his conciliatory response to us tonight and for recognising—indeed, after nearly two hours, he could hardly fail to recognise—that the clauses as drafted are not quite perfection and that more needs to be done. We are, of course, very willing to engage in constructive discussions to try to find a solution and a way through this. I think he will have heard many times during this debate that to have the Secretary of State as prosecutor, judge, jury and executioner is simply not acceptable to your Lordships, and he has made the point that a single unelected arbiter is not acceptable to the Government. Therefore we need to find some solution: an arbitration that is seen to be fair on all sides. That is perhaps where we should concentrate.

As my final word on this subject, I ask the Government to consider seriously the can of worms that others have referred to and which has been spoken of many times in this debate. I suspect that the Government did not fully recognise it when drafting this Bill. Given all the potential difficulties that are implied in all this, should the situation ever arise, is it really worth pursuing Part 2? I think it has been said on all sides of the Committee that our preference would be not to have Part 2.

I think that came from all sides of the Chamber. The Government have perhaps recognised that shadow mayors are not to be pursued. It may be time that they should also have the courage to consider whether Part 2 is worth all the trouble that it may potentially cause and whether the best solution to the dilemma we have spent the past two hours debating might be just not to pursue it at all.

My Lords, inspiration has arrived regarding one of the questions asked by the noble Lord, Lord McKenzie. He asked at what point local authorities would be notified that there is an infraction proceeding. They are made aware via relevant departments from the outset of formal proceedings—so, from an Article 258 letter of formal notice.

My Lords, I shall not detain the Committee very long in winding up this fairly substantial debate. I thank the Minister for the movement that he has indicated in response to representations on the generality of the problems arising with local government. The concerns of the Welsh Local Government Association are very similar to those of the LGA and the extent that Part 2 can be amended between now and Report to meet those concerns will be equally as welcome in Wales as elsewhere, if the Act, as it will be, is to be applicable in Wales.

I concur entirely with what the noble Lord, Lord Tope, said a moment ago about doing away with Part 2 in its entirety. That would avoid all the problems, but judging from the comments made by the Minister in responding to the debate, it seems that there is still an intention to have a Part 2, albeit amended. If that is the case, I hope that the message will be taken loud and clear from this Chamber that the Minister made it clear that by virtue of Section 36, the Act will apply in England only as things stand now. That will be heard particularly by my good friend Mr Alex Salmond and by others as well, as will the comments of the noble Lord, Lord Newton, about the response if there were attempts to take money from local authorities in Wales, Scotland and Northern Ireland in relation to this Bill. I entirely understand that noble Lords from England will feel that there would be inequity if that was the case, and that is why I suspect that at some point in time we will find a formula that brings in Wales, Scotland and Northern Ireland.

If that is the case, it needs to be in the Bill. It needs to have an opportunity to be discussed and debated and to have all the opinions from those three areas brought on board before a final conclusion is reached in relation to the legislation. I very much hope that between now and Report, if there is to be movement away from what the noble Lord said—that it does not apply, as it presently stands, to the two nations of Wales and Scotland and to the Province of Northern Ireland—that can be made known to us in good time so that there can be discussion, if necessary, and discussion with the authorities in the devolved Administrations so that on Report we can address this in a way that will be acceptable, at least in terms of debate, discussion and parliamentary process, by those who have to live with the consequences. I beg leave to withdraw the amendment.

Amendment 110 withdrawn.

Amendments 110A to 114 not moved.

Clause 31 agreed.

Clause 32 agreed.

Amendment 114A not moved.

Clause 33 : EU financial sanction notices

Amendment 115 not moved.

Clause 33 agreed.

Clause 34 agreed.

Amendment 115A not moved.

Clause 35 : Further EU financial sanction notices

Amendment 116 not moved.

Clause 35 agreed.

Amendment 117 not moved.

Clause 36 : Meaning of “local or public authority”

Amendments 117ZA to 117A not moved.

Clause 36 agreed.

Clause 37 agreed.

Amendment 118

Moved by

118: Before Clause 38, insert the following new Clause—

“Tax increment financing

(1) The Business Rate Supplement Act 2009 is amended as follows.

(2) After section 1 (power to impose a BRS) insert—

“(1A) A BRS may be in the form of tax increment financing.”

(3) In section 14 (chargeable amount: supplementary) in subsection (2) after ““A” is” insert “for any form of BRS other than tax increment financing”.

(4) In section 14, after subsection (2) insert—

“(2A) For tax increment financing “A” is—

(a) the increase in the rateable value on the chargeable day attributable to the project to which the tax increment financing relates, or(b) if section 12(2) applies, the rateable value of the occupied part of the hereditament on that day.”.”

My Lords, we have just been through a very important debate that has taken a good two hours. I sense that the House is absolutely exhausted, so I will try to be very brief in moving Amendment 118. I will speak also to Amendment 118ZA. Since the latter is the smaller, I will address it very quickly now.

This arose because my colleague and expert lawyer, the noble Baroness, Lady Hamwee, looked at the Bill and realised that there was a serious question in the wording of Clause 38(7), which refers to business rate supplements and makes various amendments. It says:

“The amendments made by this section do not apply in relation to a BRS imposed before the date this section comes into force”.

That is an important date because on one side of the date of raising a business rate supplement there is in many cases no requirement for a ballot, and various other conditions are different, and on the other side of that benchmark the conditions are entirely different. It is absolutely necessary that any authority affected by business rate supplement rules knows when that date occurs. I apologise if we have made a mistake, but neither the noble Baroness, Lady Hamwee, nor I can find any definition to determine when “this section comes into force”. This is an attempt to do that by replacing those words with the word “enacted”. It seems that if this clause should pass and become part of the Bill in its final form there has to be some clarity from the Government. This is a technical issue but it could lead to an awful lot of confusion and litigation if it is not clarified.

Amendment 118 covers the issue of tax increment financing. I will take a moment or two to explain what tax increment financing is. I am sure many Members of this House are very aware of it but there might be one or two who are not. I will then explain why I have raised this in this Bill and at this point. Tax increment financing was first used in the 1950s by California and is now part of the framework statutes of every state of the United States bar Arkansas, as well as of various continental countries, in various forms. Essentially it is a mechanism that recognises that where regeneration takes place or where there is new infrastructure, land values consequently rise. Therefore, business rates associated with that increase in land values are attributable to the existence of the project. In effect, it allows the relevant local authority or other body to borrow against that predicted increase in the business rates that results from the construction and existence of the project.

In this country we have a great problem in building infrastructure. People often use the example of the London Tube system and the Jubilee line. We get the cost upfront—in the case of the Jubilee line, about £3.5 billion—but there is a huge benefit at the far end when the project is complete. The increase in benefit to landowners around the various stations on the Jubilee line is estimated at about £13 billion. In other words, huge value is created, but we rarely find any mechanism to let us capture that value in order to get the financing to build the project in the first place. This happens on a small scale as well as a large scale. Knowing the cash that is coming out at the end, are we going to take the steps to allow us to find a mechanism to tap that in order to get the project built?

In the United States, this is not often used on large-scale projects. It is used typically on small, local regeneration projects in blighted areas, but it need not be limited to that application. The Deputy Prime Minister, Nick Clegg, announced in September 2010 that the coalition would at some point allow local authorities to use tax increment financing to finance infrastructure projects. In a sense, this is a probing amendment to find out where on earth we are in this process. I speak partly as a Londoner because I know that so many infrastructure projects are necessary in this city, but it has to apply to the whole of the country.

This issue is relevant because of the various new clauses in the Bill that apply to the business rate supplement. I am conscious that a review is under way of local government revenue-raising powers and that tax increment financing is likely to be discussed as part of that. However, a problem arises from Clause 38 because of the new constraints that are applied to local authorities in raising business rate supplements— notably that a ballot is now necessary for every business rate supplement. Under the existing rules, no ballot is necessary if the business rate supplement provides less than one-third of the total cost of the project.

Crossrail was passed through a special hybrid Bill but the business rate supplement plays a significant part in the financing for it. Had all the businesses in London that are covered by this rate been balloted, they would not have passed the business rate supplement because many of them do not benefit from the existence of Crossrail. I am sure that this will be true on a small scale as well. It will become very difficult to achieve a business rate supplement when many businesses will look at the project that is very beneficial to the community but say that it does not benefit them directly. The joy about tax increment financing, if that were to be the basis on which businesses were balloted, is that you pay it only if you have benefited. You will pay a tax increment levy only if you have seen the increase in property values that comes because the project has been created. That, presumably, is something that businesses capture through rent or through the sale of property or in various other ways, but it is in their interest to make sure that the project happens.

That is why I have raised the matter in this context, although there is a more general Bill to come. It seemed to me that if we were going to see in this Bill new difficulties for using business rate supplements, we at least ought to have some discussion of mechanisms that would be put in place to give confidence to local authorities that they could proceed with infrastructure projects, regeneration and other necessary developments. They would then have some assurance that mechanisms would be coming their way that would allow them to achieve that. At a time when we talk about the importance of economic growth, infrastructure is perhaps more important than ever, so there is an urgency in clarifying this issue. That is why I have brought forward the amendment. I beg to move.

My Lords, we understand why the smaller of the amendments has been introduced tonight. Doubtless the Minister will be able to give satisfaction on the date that these provisions enter into force for the reasons the noble Baroness has outlined. We also understand better now why she has attached tax increment financing to these provisions. As she said, a ballot is now required in all circumstances, whatever the level of funding, and there may be difficulties in securing that in the future.

Tax increment financing is about raising more money upfront by committing revenues which would not have arisen but for the project going ahead. We accept and support the importance of focusing at this time on tax increment financing when capital resources for local authorities are especially tight and the private-sector nervousness about the state of the economy means fund raising is extremely difficult. The noble Baroness will be aware that the previous Government set up a working party to examine this and an enlarged group has been working with the coalition Government. What I am not sure about is the grafting of these provisions on to the Business Rate Supplements Act 2009, which is about levying a supplement on the NNDR. It involves consultation arrangements and a ballot of those existing ratepayers affected. In concept, TIF is about ring-fencing additional business rates and almost hypothecating those to fund a borrowing arrangement. The current position is set out in the local growth document which the Government issued recently. That talks about introducing new borrowing powers to allow tax increment financing. It will be interesting to hear from the Minister what the mechanism is for those borrowing powers to be introduced to facilitate tax increment financing. I do not think grafting it on to the Business Rate Supplements Act provisions will be the right way to achieve it. It looks as though the Government already are focused on changes to borrowing arrangements which will facilitate it and obviously, subject to the detail of that, it is a principle and a project which we would support because it is important to get this source of funding under way at the current time.

My Lords, I want to add a word from the perspective of English core cities. The proposals around tax increment financing put by the eight largest English cities to Government three to four years ago have gradually been working their way through a number of committees, particularly in the Treasury. In the past 12 months added impetus has been given to tax increment financing. I hope that what my noble friend Lady Kramer is proposing here does not cause any delay to the move forward with the Government’s proposals because tax increment financing is urgently needed to enable cities, in particular, and all councils to be able to borrow against future business rate income growth. At present local councils have the power to borrow prudentially, but prudential borrowing requires there to be an income stream guaranteed to enable that borrowing to proceed. Tax increment financing enables borrowing to be made against future growth and projections of that business rate income, as my noble friend Lady Kramer rightly pointed out.

These are not separate issues and they can sit happily together but we are looking for some clarity from Government that tax increment financing as a principle will go ahead as speedily as the Deputy Prime Minister announced that it would last year. Local authorities are waiting for the powers to be implemented and it could well be a further 18 months to two years before those powers come forward. They are urgently needed. Otherwise infrastructure funding that requires a capital investment based on borrowing on the markets needs to be progressed. Without it that investment will not take place. I look forward to my noble friend the Minister clarifying the speed with which tax increment financing can be introduced and how then that proposal lies with this proposal in the name of my noble friend Lady Kramer.

My Lords, the noble Lord, Lord Shipley, is quite right to refer to the support for the principle from the core cities and also, in general, from the Local Government Association. I endorse that. To help me understand the implications of this measure, can the Minister refer back to the point that she raised about this being more acceptable to business ratepayers because they will benefit from the projects that are being financed through this mechanism as opposed to something like Crossrail where they may not have done? This does not necessarily constitute an objection to the proposal, but I wonder whether that is right. The rates are borne by the occupier of business premises. The value effectively goes to the owner and they are not necessarily the same. We have had over many years in local government finance the position where property owners contribute little to the regeneration of cities and the like. The financial burden falls on the tenants through the rents and they also pay the rates. I wonder whether she is not being a little optimistic in assuming that the occupiers of premises that may benefit from these developments will be as enthusiastic as she might suppose, although, as I say, that does not vitiate the validity of the proposal as a means of financing investment.

My Lords, I hope I can be helpful on this but, while thanking all noble Lords who have spoken, I revert to the point that my noble friend Lady Kramer made in her initial remarks about this being a probing amendment.

The Government have committed to introduce tax increment financing but we should not pre-empt the outcome of the local government resource review that will conclude in July. The review is looking at both local retention of rates and tax increment financing as we need to make sure that tax increment financing proposals are consistent with our wider proposals on business rates retention. The amendment appears to increase the rates liability of businesses, whereas tax increment financing, as generally understood, does not increase the business rates that would otherwise be levied but uses those rates to repay the borrowing that helped to deliver a piece of infrastructure. The business rate supplement and proposals for tax increment financing are two separate models that are structured differently. Rather than integrate them, there is no reason why they could not be used alongside each other to facilitate the funding of infrastructure to support economic growth.

The amendment seems to create two types of business rate supplement. The first type is a traditional business rate supplement of up to a 2p levy on business rates payers within an authority area that occupy property rated above £50,000 for an economic development project. The second type is a business rate supplement for where tax increment financing has delivered some infrastructure project of up to a 2p levy within an authority area but is restricted to the increases in rateable value of properties rated above £50,000 as a result of some infrastructure that has been implemented by tax increment financing.

The amendment appears to be defective in a number of ways. There is no definition of tax increment financing. The amendment would also create some practical concerns. The tuppence maximum will apply to the area, so in London the proposal could not apply as the tuppence limit reached by the Crossrail business rate supplement has been dealt with. Applying the increase to the rateable value to adjust the impact of the tax increment financing project would require a second ratings list to be set up for all properties with rateable values both prior to and after the tax increment financing project delivery. A consequent increase in administrative costs is highly subject to challenges over the extent of any rateable value increase as a result of the tax increment financing project or other factors—refurbishment of a property, for example.

The tax increment financing scheme does not increase the business rates that would otherwise be levied but uses those rates generated by the infrastructure to repay borrowing. Under existing arrangements, 100 per cent of business rate revenues collected by local authorities are pooled for redistribution to local authorities in England. By considering options to enable councils to retain their locally raised business rates, the current local government resource review provides an opportunity for significant changes in the way in which councils are funded. Such an approach could help to set free many local councils from dependency on central government funding and provide incentives for them to promote economic growth. The review is considering how we could manage the distributional impacts of any new arrangements. More deprived councils will continue to receive support.

Last September, the Deputy Prime Minister announced that the Government were committed to take legislation to allow for tax increment financing. Then, the local growth White Paper, issued in November, set out the Government’s intention to carry out a resource review. The terms of reference for the resource review were published in a Written Ministerial Statement by the Secretary of State on 17 March 2011. The resource review will look at local retention and tax increment financing in the round and will conclude in July. The aim is then to move as quickly as possible towards implementation, taking into account the need for primary legislation.

I appreciate the spirit of Amendment 118ZA, which aims to ensure that any business rate supplement where the levy raises less than one-third of the overall project cannot be imposed between Royal Assent and the commencement order without a ballot. However, we do not think that bringing forward commencement of that part is necessary as we are not aware of any proposals for any new business rate supplement planned to be imposed—that would fund less than one-third of the overall project—as we have not seen an initial prospectus or consultation. The business rate supplement for Crossrail has already been imposed and would not be affected by the amendment. I should like to offer reassurance that the Government will bring into force the proposed change that will ensure a ballot for all future business rate supplements regardless of whether it funds more or less than one-third of overall costs.

Clause 38 will come into force following a commencement order to be made by the Secretary of State. We will look to make that commencement order for a date no earlier than two months after Royal Assent in line with convention that legislation is brought into force earlier only where necessary and in exceptional circumstances. I trust that that is a fair response to the noble Baroness and that she will feel able to withdraw her amendment.

I thank the Minister. I am not sure that we are a whole lot clearer on the commencement date but perhaps the Government at the earliest possible opportunity will make that date clear to allow local authorities to handle their affairs in the most effective manner. I accept that I am not likely to get a clearer answer than that.

There are no absolute rules on tax increment financing. There is no absolute requirement that TIF applies only to the standard business rate. There is no rationale that says that it should not apply to a special business rate, which is what we might call the business rate supplement. If this begins to be a widely used measure, many communities and many business communities might rather see a special rate for a project that they consider to be particularly beneficial rather than forgo the project. I would be sad if the Government were ruling out flexibility around TIF from the beginning and going only with the very plain vanilla simplest form of TIF as they look at the various options in front of them.

The noble Lord, Lord Beecham, raised the point that very often the person or the business paying the business rate is not necessarily the one that benefits from the increase in value. I take his point. However, as the Minister pointed out, with the standard vanilla TIF, this would not be an issue because one is looking just at the standard business rate and it would be only where there was a special levy in order to create the project. It will depend on whether that increase in value results in increased benefits to the occupier. For example, a shop that suddenly finds there is much more traffic coming through the door may be very pleased to support the higher rate payment because, in effect, their business has benefited. I would say that that is not an absolute.

I would hope that local authorities are given the maximum amount of flexibility to be able to design projects around the needs of their community—and the benefits that will come to their community—to negotiate much of this with local business. I hope very much that as the Government deal with this issue, they will not try to be prescriptive but will allow that kind of financial flexibility which local authorities, I suspect, are best positioned to understand in detail.

I very much confirm that this was a probing amendment. I was rather flattered by the Minister’s attempt to deal with some of it on a line-by-line basis. It was not written with that in mind. I very gladly beg leave to withdraw the amendment.

Amendment 118 withdrawn.

Clause 38 : Ballot for imposition and certain variations of a business rate supplement

Amendment 118ZA not moved.

Clause 38 agreed.

House resumed. Committee to begin again not before 8.30 pm.