Select Committee on Transport, Local Government and the Regions Memoranda


Memorandum by Society of County Treasurers (LGB 04)

INTRODUCTION

  1.  The Society of County Treasurers (the Society) has in membership all 35 Chief Financial Officers of the English County Councils, and together these authorities represent 47 per cent of the population of England and provide services across 84 per cent of its land area.

  2.  The Society welcomes this opportunity to submit its views to the Committee and would be happy to follow this up with oral evidence if the Committee so desires. The submission itself addresses each of the key elements of the draft bill upon which the Society would like to put forward it views for consideration.

CAPITAL FINANCE

  3.  The Society welcomes the proposals, which will give local authorities the financial freedom to borrow for capital purposes where they can demonstrate affordability. The Society has already provided its views to the Chartered Institute of Public Finance and Accountancy (CIPFA) on the draft Prudential Code, which provides further details on how borrowing limits will be calculated.

  4.  Proposals for the Secretary of State to hold reserve powers to set borrowing limits for all or individual authorities, seem to be at odds with the principle of a prudential system for capital finance and will not only act to restrict the proposed new freedom but will also bring an uncertainty to the process when local authorities are setting borrowing limits.

  5.  The Society is encouraged by the clarification of local authority powers to invest for prudent financial management purposes and would like to encourage the Government to provide additional flexibility in respect of the financial instruments local authorities may use for investment purposes.

  6.  However, we are concerned that there is a risk of undue prescription and centralisation from the Secretary of State taking powers to regulate the use of capital receipts and to make new regulations.

  7.  We also think it important that Government continues to provide its current share of revenue support to capital investment, providing prudential guidelines are adhered to, in line with capital strategy and asset management plans.

FINANCIAL ADMINISTRATION

  8.  The proposals for the Secretary of State to specify that local authorities maintain their reserves at a minimum level would seem to be particularly problematic and unnecessary. Local authorities will have regard to a range of considerations when setting appropriate levels of reserves and it also seems unlikely that any legislation could account for all local authority types, sizes and circumstances that vary from year to year.

  9.  The Society questions the need for the proposals for authorities to keep their finances under review, and for the Chief Finance Officer to report on the adequacy of reserves and robustness of budget estimates. They will be doing this anyway in accordance with professional guidance, CIPFA codes and best practice, and there appears to be a distinct lack of evidence to support the need for such legislation.

  10.  CIPFA has recently issued a consultation document entitled "A Statement On The Role Of The Finance Director In The Modern Local Authority". Such professional guidance is welcomed by the Society and held up as an example of the success of the current system.

FORMULA GRANT

  11.  The proposal to effectively combine the existing Revenue Support Grant (RSG) and National Non Domestic Rates (NNDR) into a single Formula Grant is strongly opposed by the Society. We maintain that NNDR is fundamentally a local tax and a combination of the RSG and NNDR elements into a single Formula Grant will remove what little transparency remains in the system. Separate identification of the NNDR is important particularly in the context of local authorities discussions with the business community and the localisation of business rates is an important element in the promised consultation on the balance of funding between central and local government.

BUSINESS IMPROVEMENT DISTRICTS

  12.  The introduction of Business Improvement Districts is potentially a useful resource for development of local schemes and priorities, although the appetite for an additional levy amongst local businesses has yet to be established.

  13.  The Society would also highlight the potential contradiction between the introduction of Business Improvements Districts on the one hand, and removing the transparency on NNDR with the introduction of Formula Grant, on the other.

NATIONAL NON DOMESTIC RATES

  14.  The Society welcomes proposals for rate relief for small businesses and is also encouraged by changes that will allow the Government to make in year contributions towards the cost of hardship relief.

COUNCIL TAX

  15.  The Society generally welcomes the proposed changes to Council Tax including the revaluation of property values every 10 years. However, this will undoubtedly lead to some significant regional variations. It is therefore important that the proposed transitional system will allow for changes to be implemented over a number of years.

  16.  Steps to remove the last remnants of the Council Tax Benefit Subsidy Limitation Scheme are welcome together with the introduction of a proposal to allow the Secretary of State to vary the number and ratio of council tax bands. We would point out that the ability to pay for those on low and fixed incomes, particularly just above the council tax benefit thresholds is becoming problematic, and the review of the number of bands and the ratio between them is crucial to maintaining the stability and acceptance of Council Tax.

  17.  The draft bill indicates that proposals regarding the council tax discounts for second homes and long-term empty properties will be incorporated following the outcome of a separate consultation exercise. The Society is generally supportive of giving local authorities the discretion to end such discounts, provided that the billing authorities in two tier areas are consulting with the County Councils as part of the decision making process.

CHARGING AND TRADING

  18.  Proposals to allow local authorities to charge for discretionary services and additional powers to trade are welcomed by the Society although we still have yet to identify services to which this might be applied and the potential impact such charges may have. We would also appose these additional freedoms being linked to performance of individual authorities.

PERFORMANCE CATEGORIES

  19.  The Society welcomes the proposals for additional freedoms and flexibilities, although it is evident that there has been a lack of progress in identifying and delivering worthwhile freedoms.

  20.  The Society is opposed to the allocation of local authorities into just four performance categories, particularly if this leads to differential treatment depending upon the classification received.

BALANCE OF FUNDING

  21.  The Society is extremely disappointed that there is no provision within this draft bill for changes to the local taxation system or base, particularly by way of returning NNDR to local authority control.

  22.  The table below illustrates that levels of council tax increases continue to run well in excess of inflation and the Society believes this position is unsustainable. Central Government funding accounts for far too big a proportion of local authority financing and as such the impact of shortfalls in central government grant or increases in service costs fall disproportionately on the local council taxpayer.

Illustrative Council Tax Increases


YEAR
ANNUAL INCREASE
ALLCOUNTIES INFLATION
1999/20006.8 per cent 8.3 per cent2.6 per cent
2000/20016.1 per cent 5.2 per cent2.3 per cent
2001/20026.4 per cent 6.3 per cent1.0 per cent
2002/20038.2 per cent 9.3 per cent2.5 per cent Est


  23.  The Society therefore urges Government to return NNDR to local authority control to restore the balance of funding.

Society of County Treasurers

June 2002


 
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