Select Committee on Transport, Local Government and the Regions Minutes of Evidence


Examination of Witnesses (Questions 460-462)

MS INES NEWMAN, MS JANET SILLETT, MS HILARY KITCHIN AND MR DENNIS REED

THURSDAY 11 JULY 2002

Mr Betts

  460. We have had evidence about clause 4 of the Bill, this power the Government takes to set borrowings of authorities for macroeconomic reasons. Now, people have expressed concerns to us that generally they want to be sure that the Government would only use that power in extremis and it is not going to be a regular thing. Your evidence says that it should not exist at all and it should not have that ability to restrict, whatever the economic circumstances of the country. Is that not going a bit far?
  (Ms Sillett) It seems to me that if it is there it should be because it is necessary and we do not think there is a macroeconomic reason why it should be necessary. It actually undermines a prudential system where you have each local authority having to test itself and to be tested so that it has its own prudential limit which is affordable both locally and nationally, but then to have imposed on that a national limit would seem rather contradictory or illogical. Yes, if we are going to have to have this power, then clearly it is important that there is some understanding of what the conditions would be when the Government would choose to use it. I think the problem is that it is a very broad power and it is a power that really, looking at the Bill and the explanatory notes, the Government could choose to impose at any time it wants to, so there will be lots of interpretations about when are the economic conditions such that it is necessary to impose it. It seems to me that the prudential system in itself is a regulatory system which will mean you do not need to have the reserve powers for it. I think you may need to have it for individual authorities if they are in breach of the law or they are not actually conforming to what they should be conforming to in order to implement the system, but I still do not think it is necessary. Presumably there is going to be that reserve power and if that is the case, then you are right. What we should be ensuring is that it is not used willy-nilly, it is not just brought in at the beginning of the system because there is still a degree of caution which is not terribly justified and then it hangs on for ever because if it does, there is no point in having the prudential framework at all and you might as well stick to capital controls as we have them now. So I suppose if one accepts it will happen, we should be a bit more certain as to what circumstances the Government would feel they can use it rather than a bland "The economic conditions mean that we have to".

Sir Paul Beresford

  461. Could I put it in simple terms. In simple terms, every local authority before it borrows is going to have to look 20 to 30 to 40 years ahead at its revenue. The majority of their revenue comes directly from government, so government has got the hold on their borrowing anyway. Yes?
  (Ms Sillett) Yes, but that means that there are other parts of the system which need changing. I am not saying that the prudential system is going to free up local authorities and it is going to be perfect; it clearly is not. There are constraints that are there because of how subsidy works, because of the 75/25 per cent and so on. That is true, but that does not mean to say that it does not matter that there is another power that is being imposed.

Mr Betts

  462. You describe, I think, LGIU, in the evidence the bias towards private finance that exists currently in the system. Do you think the Bill does really enable you to address that and were you surprised that there were not more proposals about freeing up local authority-owned companies and making them more of a force in terms of capital investment?
  (Ms Newman) I think we will have to put in a note, but just on the companies, we have argued strongly that the whole company legislation needs reviewing and that there should be a public interest company. This brings the company legislation into the prudential framework which does not do what they said they would do which is review the whole structure of public, local authority companies and we very much agree that that needs looking at. Do you want to talk about PFI?

  (Ms Sillett) Yes. Clearly the continuation of a separate support system for PFI credit means there is still going to be an in-built encouragement for local authorities to look at private finance and I think how you interpret the provisions over credit arrangements, there seems to be again some sort of bias in favour of PFI arrangements. Actually there are other kinds of public-private partnerships which I think would probably be equally not given a level playing field in their favour because it is PFI credit which is going to continue. I do not see why there needs to be a separate subsidy arrangement for PFI. It seems to me that local authorities should be able to look at all of the options possible and there should be a level playing field and they choose the option which makes the most sense for their communities financially and in other ways. I think the prudential framework will probably help to kind of tilt the balance a little bit more to a level playing field, but not enough because there is still going to be a separate regime for PFI.

  Chairman: Well, on that note, can I thank you very much for your evidence.





 
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