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

Supplementary memorandum by Office of the Deputy Prime Minister (LGB 45)

  At the TLRC Urban Affairs Sub-Committee hearing on the afternoon of Thursday 11 July regarding the draft Local Government Bill, I agreed to let the Committee have a supplementary note on the following points.

The number of plans a local authority has a statutory responsibility to produce

  Research carried out by the Department has identified 66 plans which councils are required to produce at Government's behest. The review of these plans, announced on 11 July 2002, aims to halve this number. I attach a copy of the press notice, which accompanied the announcement for information.

The expected savings that would be made by Merging NNDR and Revenue Support Grant (clauses 29-44)

  It is difficult to put a monetary figure on the savings which would be made from merging Revenue Support Grant and national Non-Domestic Rates into a single funding stream. There would be some small savings in staff time and resources for the Department itself. These would arise not so much from making one set of payments instead of two but from the reduction in the time needed to explain how two funding streams interact and to correct the misunderstandings, which are evident in the responses we receive when we consult on our proposals for the annual Local Government Finance Report.

  However, we expect the majority of the benefits to accrue to local authorities, councillors and other stakeholders. These benefits would be in the form of time saved as a consequence of the greater transparency and intelligibility of the grant distribution system having only one funding stream.

Will Wolverhampton City Council really lose out to the tune of £10 million with respect to the requirement that housing revenue account surpluses can be paid to the Government for re-distribution to other services, as they suggested in their evidence to the committee (clause 96).

  In their evidence I believe Wolverhampton City Council suggested that some £10 million a year was being taken from them by the subsidy system. This is not the case: Wolverhampton are receiving a subsidy of £5 million towards the cost of operating their council housing over and above the subsidy they receive for rent rebates.

  The detailed position is as follows. Wolverhampton will this year receive a Housing Revenue Account (HRA) subsidy of £41.2 million. This is made up of two components:

    —  a Rent Rebate Subsidy of £36 million, which meets most of the costs of rebates to tenants who are eligible for Housing Benefit; and

    —  a Housing Element Subsidy of £5.2 million. This is the "bricks and mortar" subsidy towards the running costs of the authority's council housing costs.

  Wolverhampton's complaint is that subsidy calculations include £15.5 million as a Major Repairs Allowance. (The Major Repairs Allowance was introduced in April 2001 to enable councils to fund capital renewals work. The intention was to ensure that councils had adequate resources to maintain their housing and were not in a position in which they were forced to allow it to deteriorate due to lack of funds. The Major Repairs Allowance can only be used for capital purposes.)

  The subsidy calculation is, in effect, saying that, before account is taken of the Major Repairs Allowance, Wolverhampton should have a surplus of income over operating costs of £10.3 million, and that that £10.3 million, plus a further £5.2 million provided in subsidy, should be set aside for capital renewals work on Wolverhampton's stock.

  Wolverhampton appear to be saying that the subsidy system should not expect them to set this money aside to renew their stock. I find this very difficult to understand. Any prudent organisation that expects to continue in business needs to set money aside to renew its assets just as much as its needs to cover its operating costs and pay its capital charges.

  Wolverhampton may feel that the subsidy system should allow them to use more of their revenues to meet operating costs and that more of the cost of renewals should be met by subsidy. I imagine many housing authorities would also like to have additional resources. However, the subsidy uses objective measures of need to share out the available subsidy as fairly as possible and the result is as I have explained: Wolverhampton is a net recipient of subsidy to the tune of £5.2 million.

The balance of benefit from overhanging debt write-off and breakage costs as against subsidy, in particular the benefit to a local authority that undertakes a Large Scale Voluntary Transfer of the write-off of the "debt overhang" (and if proposed, the write-off of debt premia); and the subsidy that would be paid to the same authority towards debt charges (clauses 48-49).

  It has been suggested that the repayment of overhanging debt following a large scale voluntary transfer to a housing association represented a financial incentive to transfer. This is not the case. Before the transfer the Housing Revenue Account subsidy system takes into account the full cost of servicing the authority's housing attributable debt: there is no net burden on the authority. The repayment of the outstanding debt following transfer ensures that this continues to be the case.

  There is in theory the option of the authority retaining the outstanding debt in its Housing Revenue Account following transfer but the Government would continue to subsidise this and again there would be no net cost to the authority.

Redistributive consequences of taking rent rebate subsidy out of the Housing Revenue Account (clause 97).

  This provision will not have a significant effect on the distribution of resources between most authorities. The purpose of Clause 97 is to produce greater transparency. At present where we calculate that an authority should have a housing element surplus that surplus is deducted from its entitlement to rent rebate subsidy and the net sum is paid to the authority. This has led the Daylight Robbery Campaign to conclude (wrongly) that councils rents are being used to pay rent rebates. In fact what is happening is that housing element surpluses from 210 authorities totalling some £667 million are being used to meet part of the cost of housing element subsidies to 57 authorities that have combined housing element deficits of around £899 million, with the Treasury making up the difference of £232 million. Under the new arrangements this position will be transparent as rent rebate subsidies will be dealt with separately.

The spending power of most authorities would not be affected. There are, however, currently 20 authorities whose housing element surplus is greater than their rent rebates. Rather than requiring that the net amount is paid to the Treasury, these authorities are currently required to transfer that amount to General Fund. Nationally this amounts to a total transfer of around £13.5 million. Only this small number of authorities would be significantly affected by Clause 97, as these transfers to the General Fund would cease and instead they would be required to pay their housing element surpluses in full into the national pool.

  If we did not operate this redistributive mechanism then either public expenditure would have to increase by £667 million, or rents would have to go up by substantial amounts (in some cases doubling) in some of the most deprived areas of the country to maintain the current level of service.

  Due to lack of time on the day, the Committee submitted a number of additional questions, the responses to which are given below.

How long has the Director of Local Government Finance been in post and what experience has he in the field of Local Government Finance?

  The director of Local Government Finance has been in post since April 2002. He has wide experience of the financing and delivery of public services, though not in the local government field.

How long has the Director of Local Government Grant Distribution been in post and what experience has he in the field of Local Government Grant Distribution?

  The manager of the Grant Distribution Division has seven years' experience in local government finance, having worked on capital finance, co-ordinated successive Revenue Support Grant settlements since 1996-97 and led the review of formula grant distribution since June 2001.

What is the turnover of Finance Division staff since 1997?

  Such information is not readily available and it would take a considerable amount of time to prepare. I am therefore providing information on the average length of time in post for certain members of staff. (Any such figure is of course a poor indicator of the contribution and expertise which individuals bring to bear. Some staff have previous experience in Local Government Finance, others have brought generic skills acquired in other policy areas. I believe that LGF staff are doing an excellent job, and the real test is the quality of their work in annual settlements, the recent Green and White Papers etc about which there can be no dispute.)

  The average length of time in post so far of the middle/senior management staff (team leaders and above) in LGF directorate is 33 months. Of course this figure does not reflect the considerable prior experience many members of staff have had in the field of local government finance. A significant number have worked in LGF directorate before and two individuals are on secondment from a local authority and the Audit Commission.

What has been the turnover of staff responsible for the business rates since 1997?

  The five staff currently in the business rates team have on average been in post for nearly five years. The team leader post has been vacant since April 2002; a new team leader will take over in September.

Clause 59 states that the two ballots for a business improvement district should be subject to a "prescribed" percentage. What will the percentage be (clause 59)?

  Establishing a Business Improvement District (BID) will require one ballot of the ratepayers, not two. However, as stated in the White Paper Strong Local Leadership—Quality Public Services for a ballot to succeed there will need to be "a simple majority of those voting plus a majority by rateable value of those voting". This is what will be prescribed. It will ensure that a BID cannot be forced through by small firms against the wishes of large ones, or vice versa.

The Audit Commission does not seem to want the responsibility for making reports available to the public. Why do you propose that they should do so (clause 108)?

  This suggestion is in contrast to the communications we have received from the Audit Commission, who have written to the Department stating that they thought that auditors "should be given the statutory power to publish Public Interest Reports rather than issuing them to the audited body". It is important that where auditors identify failings in local authorities that action is taken promptly to rectify the position. We consider that there is merit in auditors taking full responsibility for the publication of their own reports rather than relying on authorities to publish. It will enhance the independence of the report if it is seen throughout to be the responsibility of the auditor. For this reason we have sought to align more closely the provisions covering all public interest reports, both reports at the end of an audit and "immediate" reports. We welcomed the proposal from the Audit Commission to make this change.

Is it time to legislate separately for Welsh and English local government? Should Welsh local government matters now be left to the Welsh assembly?

  We have no plans to change existing legislative arrangements, which we believe are working well and meeting the needs of people in both England and Wales.

Rt Hon Nick Raynsford MP


  Councils are set to benefit from more streamlined and less time consuming plan requirements. The benefits will be delivered by new principles, published today by Local Government Minister Nick Raynsford, aimed to at least halve the number of plans central government requires councils to develop.

  The Government will use the principles to evaluate current plan requirements and aims to announce the results of the evaluation towards the end of October 2002. The evaluation will highlight the plans to be removed and will significantly reduce the burden of those that are retained.

  The principles are part of a series of commitments made in the White Paper, Strong Local Leadership—Quality Public Services, to help bring councils greater freedoms to deliver. Commitments already completed include the publication of the Making a Difference report into red tape and bureaucracy in local government.

  Additionally, the Department of Health has already announced a significant reduction in Social Service plan requirements.

  Nick Raynsford commented:

    "Planning has an important role to play in the delivery of high quality services. Councils plan with their partners, for the delivery of services in a variety of ways and for a number of purposes. In some cases, central government has a legitimate need to place requirements on councils to provide assurance that they have robust mechanisms in place to deliver national policy priorities and standards.

    However, we also recognise the need to exercise restraint I imposing such requirements. The cumulative burden of plan requirements has continued to increase with insufficient regard to whether the services concerned are national priorities, the performance of councils and whether other approaches can deliver the same outcome.

    The principles published today are one of a number of steps to address these issues. They set out the way in which we envisage achieving the aims of reducing the plan burden and improving the effectiveness of those plan requirements that remain for both central and local government."

  The principles aim to reduce the burden of plan requirements placed on councils in terms of the number of plans required, the prescription of their content and the resources needed for their production. The principles also emphasise the need for consistency between plans, avoiding the duplication of a number of plan requirements in a single plan and avoidance of an annual plan cycle.

  Key points include:

    —  A presumption against the introduction of new plan requirements.

    —  Regular review and evaluation of plan requirements.

    —  A clearer link between plan requirements and national policy priorities.

    —  Commitment to seek more efficient and effective alternatives to plans, where possible.

    —  Consideration on the need for some plan requirements in the context of council performance.

    —  Leave scope for local discretion on plan requirements, where possible.

    —  Plan requirements should seek to minimise demand on council resources.

  The full set of principles is included in Annex A.

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