The government defended its refusal to grant supplementary credit approvals to local authorities' commercial activities - those, for example, involved in the tourism and conference business. It would impact on overall public expenditure, said DETR minister Alan Meale in winding up last night's adjournment debate.
He said his department had no plans during the period of the three-year comprehensive spending review timetable to grant trading credit approvals, other than for a small number of transport projects. In future, the government hoped to lift restrictions on borrowing by local authority airports - especially those in smaller local authorities.
The debate was initiated by Phil Wallis, Liberal Democrat MP for Harrogate and Knaresborough, who said the government's refusal to grant trading credit approval could have a severe effect on any council involved in commercial trading activities. In his constituency, 200 businesses and 4,500 people depended on Harrogate's successful conference and exhibition business. Other towns such as Scarborough, Southport, Blackpool, Eastbourne and Torquay had publicly-owned conference and exhibition facilities.
'However, the council has now reached the point where the future prosperity and survival of its conference business requires significant capital investment - about£9m, of which£2m can be found from accumulated profits within the borough council. The council needs to raise external funds of£6.6m to allow reinvestment in catering and exhibition facilities. failure to do that will inevitably have an impact on local jobs and businesses, and will reduce the financial return'.
He said that Harrogate had applied for trading credit approval under s 54 of the Local Government and Housing Act 1989. Although not designed in legislation, they were first issued for the South Yorkshire 'supertram' project and were mainly granted for regional airport development. The Local Government Association had said recently they were issued on the basis that borrowing costs would be met from income streams.
That made excellent sense and followed the rule that borrowing should be for capital investment, not revenue expenditure.
Mr Willis added: 'However, obtaining either a supplementary credit approval or a trading credit depends entirely on the discretion of the secretary of state, who may have regard, according to section 55(1) of the 1989 Act 'to such factors as appear to him to be appropriate'. Surely such a situation is unacceptable?
'This year, four local authorities applied for a trading credit approval, and not one of them was successful. If, as for Harrogate, the reasons for refusal are somewhat spurious to say the least, what is the point of such a facility?'
He added that before applying the council had exhausted every other method of financing for its new facilities. Reserves were at a minimum, prudent level and insufficient to apply to a capital project. A sale to the private sector was considered - and marketed worldwide in 1991-92. While great interest was shown in taking over the management and operational functions, the private sector was not prepared to take on the capital debts and invest in new facilities. Nor could the core objective that the business remained a key local economic development primer be guaranteed.
Nor was PFI a suitable solution and Harrogate, not being an assisted area, could have only limited - a£500,000 - funding from Europe.
Replying to the debate, Mr Meale said one of the main reasons the DETR rarely gave credit approvals was that the 1999-2000 budgets were identified within specific programmes. There was only£4.5m for local authority airports and£1m for ports. He added that the White Paper, Modern Local Government - In Touch With the People - set out details proposals for a long-term capitalinvestment framework for improving the capital allocations system.
'It also gives local authorities greater freedom as well as encouraging better local authority asset management, therby ensuring that spending is conducted in the most efficient, fair and effective way', added the minister.
He said additional credit approvals could be given only in exceptional circumstances
'Trading credit approvals, like all other credit approvals, other than those issued with the private finance initiative, count as public spending. Additional trading credit approvals therefore lead to additional public spending. Any extra amounts would have to be found from within the relevant department's expenditure limit', said Mr Meale.