Select Committee on Deregulation and Regulatory Reform Fourth Report

Financial impact

  48. The Department's estimate of the financial impact of the proposal - which varies from that given in the consultation document, as a result of concerns expressed by consultees about the basis on which the original estimate was made - is set out in paragraphs 48-53 and Annex D (Draft Regulatory Impact Assessment) of the explanatory memorandum.[47] As is made clear in the explanatory memorandum, the proposals have been developed on the basis of 'cost neutrality', meaning that none of the parties involved should be financially disadvantaged as a result of the changes proposed to be made.

49. We were initially unhappy about the clarity of these estimates. The combination of the rising capital baseline, the effects of VAT, and the fact that past spending is not necessarily an accurate guide to what will be needed in the future, as well as the confusing nature of the current arrangements for determining liability, served to create a complex situation which was not well explained in the explanatory memorandum. Given the importance (as confirmed by many of the responses to consultation) of ensuring that 'cost neutrality' was achieved by these proposals, and the associated funding mechanisms, we asked the Department for further information on a number of points relating to the financial impact of the proposal.[48]

50. We are grateful to the Department for its reply, which, along with the illustrations it has provided of how the proposals would have affected projects in schools in the Burnley area since 1996, clarified the picture considerably.[49] We accept that the figures given in the Regulatory Impact Assessment represent the best estimate which can be made of the actual effects on all of the parties involved. On that basis, we are satisfied that the proposals achieve 'cost neutrality', and that none of the parties involved should be financially disadvantaged as a result of the changes in the assignment of liability. This will depend to a large extent, however, on the Department ensuring that the necessary funding is made available. In particular, we are anxious that the necessary funding for local authorities to meet their new revenue liabilities should feed through into the new arrangements for determining SSA which will have effect from 2003-04, and we note the Department's assurance that this will be the case.[50]

51. We note, however, that, for various reasons, the effect on individual schools - and LEAs - will vary. In this context, we draw particular attention to the provision allowing the Secretary of State to pay grant to VA governing bodies at up to 100% in 'exceptional circumstances', which should prevent any individual school from being substantially financially disadvantaged by the changes.[51] Precise details of the effects of the changes will, the explanatory memorandum says, be illustrated in detailed guidance to be provided to VA schools, Dioceses and LEAs.[52] The Department's supplementary memorandum suggests that this guidance will be ready in draft form by mid-February:[53] we hope that it will be possible to see this draft before concluding our consideration of any draft Order consequent on this proposal.

52. There is one further point to which we believe it is worth drawing attention (because it is not made clear in the explanatory memorandum). Because the VA capital baseline is fixed, the Department will spend the same in cash terms as it would have done had the grant rate remained at 85%. However, part of the allocations would be in 100% terms to fund backlog/exceptional circumstance spending, and most would be at the revised rate of grant support of 90%. So a smaller gross capital programme would be supported in absolute terms - meaning less money spent on capital work at VA schools as a result of these proposals.[54] On the other hand, it should be noted that if no change were made, it may be the case that all the funds available would not be used anyway, because VA schools would be unable to raise sufficient money to meet the full 15% contribution (indeed, more than one respondent to the consultation suggested that, in some cases, this was already happening). It should also be pointed out that the 10% contribution is a minimum, not an absolute: VA governing bodies are free to spend more on their premises if they can raise the funds.

53. We note that the Department intends to carry out a post­implementation review of the operation of the proposals.[55] This review would look at the position around the middle of the first year (2002-03), and then do so again after the end of that year. We look forward to receiving a report of that review (as the Department has indicated will be the case[56]). When we do so, we will examine carefully the financial effects of the changes proposed to be made, and any funding adjustments the Department makes to take account of any differences between its current estimates of the financial impact of the proposals and the impact which they actually have.

Subordinate provisions

  54. As already noted above, it is proposed that those provisions of the Order which would define capital expenditure (including that which would set a de minimis level beneath which no expenditure could be considered as capital) be designated subordinate provisions; and that any ensuing subordinate provisions orders be subject to the negative resolution procedure.

55. The Department explained that the reason for the designation of these provisions as subordinate was to enable the definition of capital expenditure to be changed in the future if, for example, there were changes to the CIPFA guidance (on which the proposed definition is based); and, similarly, to enable changes to be made to the de minimis level in the light of experience and any changing circumstances.[57] Enabling amendment of the definition of 'capital expenditure' seems sensible; and, as we note above, it is important that the de minimis level can be changed, in order to ensure protection against the possibility that the level set turns out to be inappropriate or unworkable (although we are satisfied on the basis of the information available that it has been set appropriately in the first instance). We are therefore satisfied that such a designation should be made; and that the negative resolution procedure is appropriate for any ensuing subordinate provisions orders. In view of the comments made by several of the respondents to consultation, however, we would expect the Department to have consulted appropriately before implementing any such changes; and this will be a matter we will consider as and when any such subordinate provisions order comes before us.


  56. The proposal laid before Parliament appeared to us to have been poorly drafted in a number of respects and had all the appearances of work in progress. A note illustrating some relevant points is included with the Appendices to this Report.[58] The Department must ensure, before a draft Order is laid before the House for second-stage scrutiny, that the Order is properly and appropriately drafted. We are pleased to learn that considerable progress has already been made in this regard.

57. It appears to us that the reason for the poor standard of drafting in this case may have been the result of the proposal having to be laid before Parliament in something of a hurry, in order to ensure that it could pass through the necessary Parliamentary stages in time for implementation on the planned date of 1 April 2002. We appreciate the need for speed in this case, given the objective of implementing these changes by that date, and the desirability of ensuring that all parties involved were given sufficient time to prepare for it. However, we remind Departments that the requirement under the Regulatory Reform Act is to lay before Parliament "proposals in the form of a draft of the Order, together with [an explanatory memorandum]."[59] The draft Order is not therefore simply an indicative adjunct to the policy proposals contained in the explanatory memorandum, but should rather represent a full and complete expression of how those proposals are to be given legislative effect. We trust that future proposals will come before Parliament in such a state as to ensure that this is the case.


  58. The proposal extends only to England. The Department note that the National Assembly for Wales has undertaken an informal consultation to establish whether there is a consensus in Wales for changes, but that that consultation produced no such consensus.

Report under Standing Order No. 141

  59. We recommend that the proposal be amended by the extension of the proposed amendments to Schedule 22 of the 1998 Act to include all 'excepted buildings', and by the improvement of the drafting of the Order so that it gives proper legislative expression to the policy proposals contained in the explanatory memorandum, before a draft Order is laid before the House.

47   See also attachment to Appendix 1. Back

48   Appendix 1, para 9. Back

49   Appendix 2, pages 42-50. Back

50   Appendix 2, page 43, para 5. Back

51   See also para 31 above. Back

52   Explanatory memorandum, para 97. Back

53   Appendix 2, page 46, para 20. Back

54   Appendix 2, page 45, para 15 . Back

55   Explanatory memorandum, para 105. Back

56   ibid, para 69. Back

57   Explanatory memorandum, paras 23, 70. Back

58   Appendix 6. Back

59   Regulatory Reform Act 2001, s6(1). Back

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