Select Committee on Transport, Local Government and the Regions Memoranda


Memorandum by Local Government Association (LGB 05)

  The LGA is the representative voice for all local councils in England and Wales. As the national voice for local communities, the LGA speaks for nearly 500 local authorities representing over 50 million people and spending £65 billion a year on local services.

SUMMARY OF EVIDENCE

    —  The Local Government Association (LGA) is pleased to see the publication of the Draft Local Government Bill.

    —  The LGA believes that a number of the finance proposals in the White Paper—Strong Local Leadership, Quality Public Service will be positive in their effects. Changes to capital finance, housing finance, fees and charges, and the ability to trade will represent significant new freedoms for local councils and help them deliver improved services to their communities, if they are implemented effectively.

    —  The LGA would like to see its Partnership for Ambition approach providing the framework and context in which the Bill should be set.

    —  We are concerned that that there has been relatively little movement on the freedom and flexibility elements of the White Paper. The Draft Bill is a welcome move towards introducing them, but this is seen as only the start of the process.

    —  The Bill contains a number of significant deregulatory measures, the proposals for Business Improvement Districts, rate relief for small businesses and changes to the council tax, which the LGA supports. However, we want to see more radical moves on finance and the balance of funding.

    —  The provisions for additional financial management are unnecessary and interventionist and the means provided to deliver the powers to trade and charge are much too cumbersome.

    —  The LGA sees the Bill is a step forward but it will not address the fundamental problem of local government finance, that the government retains too much control over local authority income.

1.  INTRODUCTION

  1.1  The Local Government Association (LGA) is pleased to see the publication of the Draft Local Government Bill. We had actively lobbied for this Draft Bill and will take up the opportunity to comment on its content in detail to inform the final version, which we hope to see announced in the next Queen's Speech.

  1.2  The LGA believes that a number of the finance proposals in the White Paper—Strong Local Leadership, Quality Public Service will be positive in their effects. Changes to capital finance, housing finance, fees and charges, and the ability to trade will represent significant new freedoms for local councils and help them deliver improved services to their communities, if they are implemented effectively.

  1.3  The government has issued a consultation paper on the Draft Bill. The LGA will be seeking the views of its member authorities and encouraging them to respond for the deadline set by the Office of the Deputy Prime Minister, which is 23 August 2002.

  1.4  In the run-up to the publication of the Local Government White Paper last year the LGA published Partnership for Ambition. This set out our vision for delivering and supporting real improvements in public services, by creating genuine partnerships between central and local government. We want to develop a framework that delivers outcomes nationally and locally, by working on two levels—firstly a concordat between central and local government at a national level, and secondly using more ambitious local public service agreements to develop the relationship between central government and individual councils themselves. We would like to see this approach providing the framework and context in which the Bill should be set.

  1.5  There is concern that there has been relatively little movement on the freedom and flexibility elements of the White Paper. The publication of the Draft Bill is a welcome move, which helps to address this, but it must be the start of the process.

  1.6  The Bill contains a number of significant deregulatory measures, the most important concerned with capital finance and with powers to trade and to charge, which the LGA supports. However, we want to see more radical moves on finance, with progress on the review of the balance of funding. We also welcome the proposals for Business Improvement Districts, rate relief for small businesses and changes to the council tax.

  1.7  On the other hand, the provisions for additional financial management are unnecessary and interventionist, the proposal to merge the Revenue Support Grant and National Non-Domestic Rates is unhelpful and the means provided to deliver the powers to trade and charge are much too cumbersome. Subject to these points, the Bill is a step forward but it will not address the fundamental problem of local government finance, that the government retains too much control over local authority income.

2.  PART 1: CHAPTER 1: CAPITAL FINANCE ETC—CLAUSES 1-20

  2.1  The LGA welcomes the capital finance proposals. The key features were first proposed by the LGA in 1998, namely the abolition of the current capital controls in favour of greater freedom for local authorities to borrow to finance capital expenditure, where they can afford it. The Capital Finance Chapter is in line with the ongoing dialogue between the government, the LGA, CIPFA and others about a new system of capital finance. The LGA also supports the development of a CIPFA Prudential Code for Capital Finance in local authorities, which will underpin the proposals in Chapter 1.

  2.2  We believe the "prudential" system is a considerable improvement on the current capital finance system because:

    —  In the words of the White Paper, "the present capital control system blurs accountability, limits local financial freedom and has become an obstacle to effective investment".

    —  The current system (which includes many statutory Regulations and Orders) is highly complex and over prescriptive. Its abolition will enable significant lightening of the regulatory burden on local authority capital finance;

    —  A consequence of the current detailed control is that local authority capital is seen as the responsibility of government. The new system will enable authorities to take more responsibility and be more accountable for their capital investment.

    —  The Audit Commission and others have criticized the current system for resulting in inefficient investment because it is based on central government prescription rather than on local choice which takes account of locally identified needs and priorities.

    —  Authorities will also be able to coordinate their revenue and capital priorities more effectively and develop more consistent strategic plans. They will be able to plan more confidently for the medium term.

    —  The new system will free authorities to borrow to finance investment where they have the revenue resources to support it. This will enable authorities to finance investment priorities, which the current capital system has not adequately resourced or facilitated, such as "spend to save" schemes. It will enable a modest increase in capital investment, to the extent that authorities can afford (and choose to incur) the revenue consequences.

  2.3  However, the Secretary of State will have wide powers to make new regulations, directions and orders under Chapter one and this brings as always the risk of undue prescription developing in secondary legislation. These include clauses:

    —    2 (3)—making provision about agreements by a local authority to borrow money ("loan agreements")

    —    3 (1)—the duty to determine and keep under review how much money a local authority can afford to borrow.

    —    4 (1) (a) and (b) setting limits in relation to the borrowing of money by local authorities, or a particular local authority.

    —    4 (4) The Secretary of State may make provisions for the circumstances in which a local authority is regarded as having headroom (the amount it can borrow) and the amount of headroom a local authority may transfer under subsection 3.

  The LGA would prefer to see all or some of these powers omitted from the Bill.

  2.4  Clause 10 also enables the Secretary of State to require local authority capital receipts to be paid to the government. This would enable such resources to be redistributed to other authorities. This is a controversial issue among local authorities, given that some will gain and some will lose as a result and both sides will argue their case strongly. If the Government is intent on pursuing this line, then the LGA believes that this power should be accompanied by an express requirement to redistribute the resources amongst local authorities and should be limited to housing capital receipts, which is the government's stated intention in the Local Government White Paper (Part 2, Chapter 5, paragraph 5.26).

3.  PART 2: FINANCIAL ADMINISTRATION—CLAUSES 25-28

  3.1  The LGA is opposed to the proposals:

    —  giving the Secretary of State power to determine a minimum reserve level for local authorities by regulation (clause 25).

    —  requiring chief finance officers to report on the adequacy of reserves and robustness of budget estimates (clause 26).

    —  giving local authorities a statutory duty to monitor their budgets and take action in the case of overspends and shortfalls of income (clause 27).

  3.2  We are not convinced that there is a need for new statutory powers to specify the level of local authorities' reserves or to monitor budgets over and beyond those already on the statute book. Examples of current provisions being section 151 of the 1972 Local Government Act, which requires every local authority to make proper arrangements for the administration of the financial affairs and section 114 of the 1988 Local Government Act which gives chief finance officers powers in the event of overspending. These proposals involve more regulation, not less, in a Bill generally designed to achieve deregulation, and run the risk of more intervention by the Secretary of State. We are not aware of convincing evidence that these new provisions are needed.

  3.3  We do however welcome the provisions in clause 28 which ease restrictions preventing local authorities from entering into agreements following a "section 114" report.

4.  PART 3—CHAPTER 1—FORMULA GRANT—CLAUSE 30

  4.1  The LGA does not support the proposal in clause 30 to consolidate Revenue Support Grant and National Non-Domestic Rate (NNDR) income into a single "formula grant".

  4.2  This proposal will not add to the transparency of local funding arrangements. We believe that the separate identification of NNDR is important, particularly in the context of local councils' discussions with their business community and in the context of the proposals to develop Business Improvement Districts.

  4.3  A number of shire districts stand to lose through this proposal. These are districts, which are not currently in receipt of Revenue Support Grant, because their income from redistributed NNDR more than covers the difference between their Standard Spending Assessment (SSA) and their income from council tax, assuming this is set at the Council Tax at Standard Spending (CTSS) level.

  4.4  The Select Committee has previously accepted the case for increasing the level of council finance raised locally. One of the most obvious ways to do so would be by means of the localisation of the business rate. This proposal will be seen to take us further away from this objective.

5.  PART 4—BUSINESS IMPROVEMENT DISTRICTS (BIDS)—CLAUSES 50-67

  5.1  Business Improvement Districts (BIDs) will be a useful development to finance town and city centre improvement. BIDs can be used in rural as well as in urban areas; voluntary town centre partnerships already operate in a number of varied areas.

  5.2  We welcome the fact that the power in the Draft Bill is a broad enabling power allowing partnerships to determine as much detail as possible. A BID is most likely to emerge where there are well-grounded partnerships.

  5.3  The LGA is working with the business community to produce draft guidance in November 2002 on the practical arrangements of setting up a BID, and final guidance will be published once relevant legislation is enacted. Like the Bill itself, guidance will be written to allow as much flexibility to reflect local circumstances.

  5.4  One issue which the guidance must resolve is the participation of the property owner. They are likely to benefit from the BID but there is no mechanism to make them contribute in exchange for this added value to their property.

6.  PART 5—NON-DOMESTIC RATES—CLAUSES 69 AND 71

  6.1  The Draft Bill contains a number of measures amending non- domestic rating legislation which the LGA is generally content with. The LGA specifically welcomes the proposal for rate relief, in clause 69, for small businesses for which we have lobbied for several years. We recognise that small business pay disproportionately more in rates than do larger businesses and have worked to produce a simple scheme to grant relief. We also note the proposal in Clause 71, which states that transitional relief will be a permanent feature of rating revaluation.

7.  PART 6—COUNCIL TAX—CLAUSES 79-87

  7.1  The LGA welcomes the proposed changes to the council tax. The LGA has long argued that the acceptability of the council tax depends on it being seen as a fair tax and one that is kept up to date. There have been considerable changes in relative property values since 1991 when the existing council tax bands were set and we support the intention to hold a new revaluation in 2005, to take effect for 2007-08, and regular revaluations at least every 10 years thereafter.

  7.2  The LGA also believes that to improve the fairness of the council tax and enhance its long-term stability the number of council tax bands and the ratios between them should be reviewed. We therefore welcome clause 80, which clarifies the power of the Secretary of State to vary the number of bands.

  7.3  The introduction of new valuations for council tax could have substantial and unpredictable effects on the bills for some households. It is therefore essential that there are transitional arrangements to phase in large changes to council tax bills. The LGA welcomes the transitional arrangements set out in clause 81, which enable a scheme to be introduced to smooth the effects of changes in council tax liability.

  7.4  Clauses 82 to 84 provide for some relatively minor, but useful, changes to the powers available to local authorities to enforce payment of council tax. These should help to ensure councils are able to maximise their council tax collection rates.

  7.8  Clause 86 enables combined fire authorities to become precepting authorities rather than levying authorities, as at present. The LGA supports the proposal that areas which wish to experiment with the introduction of precepts for CFAs should be allowed to do so and has established a task group under its Fire Executive to examine the implications.

  7.9  The LGA is pleased that the legislative basis of the council tax benefit subsidy limitation scheme, under which local taxpayers had to meet the additional costs in benefits of council tax rises above a certain threshold, will be abolished.

  7.10  We are disappointed that there are no specific clauses to give local authorities discretion to remove the council tax discount for second homes and to retain the proceeds for local use. We understand that Ministers have agreed, in principle, to making provisions for this is in the Bill, but are considering the technical aspects before any final decision is made.

8.  PART 7—CHAPTER 1—HOUSING FINANCE—CLAUSES 88-94

  8.1  The LGA welcome the fact that legislation is finally being introduced to permit the removal of rent rebates from the HRA. It will also simplify the procedure for paying housing benefit subsidy to local authorities in England, since the responsibility is currently shared between ODPM and DWP and it will enable the National Assembly for Wales to exercise the powers in relation to Wales.

9.  PART 8—CHAPTER 1—CHARGING AND TRADING—CLAUSES 100-104

  9.1  Fees and user charges currently make a substantial contribution to the overall funding of local services. But, generally, local authorities may only levy charges for services where there is a specific power to do so, and many fees and charges are fixed according to government scales. The LGA supports the view of the Audit Commission that there is significant room for improvement in the way that local authorities could use charges to meet policy objectives.

  9.2  One valuable step would be to give local authorities a general power, and we therefore welcome these clauses, which provide for a new power for best value authorities to charge for discretionary services. However, there are limitations to this power to charge. It may be limited to only certain authorities defined under the Comprehensive Performance Assessment framework, and may be limited to cover only the recovery of costs.

  9.3  It is widely accepted that the legal basis for local authority trading is complex, contested and inadequate. The LGA believes that authorities should be free to supply services to others, whether public, voluntary and private bodies and individuals, where:

    —  such services are of high quality;

    —  trading does not compromise the financial health of the authority; or

    —  inhibit the development of competitive local supply markets.

  9.4  The Government consulted last year on proposals to extend powers to trade through an order under section 16 of the Local Government Act 1999. Section 16 allows the Secretary of State to remove by order obstacles imposed by primary legislation to the achievement of best value by local authorities. However, such orders are subject to a "superaffirmative" procedure, which is hardly less time-consuming than primary legislation. No order under section 16 has yet been laid.

  9.5  The LGA welcomes the fact that clause 102 improves on section 16 by conferring, through primary legislation, explicit powers to permit trading, and making orders under this power subject to the negative resolution procedure, which is much less lengthy and cumbersome than the procedure for orders under section 16.

  9.6  Clause 103 permits the Secretary of State by order to amend or annul any enactment of any enactment obstructing trading or charging. However, such orders are subject to a "superaffirmative" procedure. This has the effect of significantly diluting the effectiveness of clause 102 as a means of making progress towards a clear legal basis for trading activity. The LGA would prefer this Bill to be used directly to remove as many of the obstacles to trading as can be identified before it is laid before Parliament.

10.  PART 8—CHAPTER 1—PERFORMANCE CATEGORIES—CLAUSES 105-106

  10.1  The LGA has expressed serious concerns about the development of the Comprehensive Performance Assessment Framework. We believe that:

    —  the CPA should focus on delivering improvements through an agreed improvement plan for each authority; not on categorisation,

    —  the CPA should deliver a rationalised and better co-ordinated system of inspections for councils; and

    —  the inspector's judgement recommendations and agreed action plan should be published at the same time to focus debate on the proposals for improvement.

  10.2  The LGA opposes the allocation of authorities through CPA to just four categories, particularly if that categorisation leads to authorities being treated in ways inappropriate to their circumstances. We are continuing to press for the Government to reconsider both the number of categories and the terms used for them. As part of this process every council should have access to a package of support which match its needs, circumstances, ambition and capacity.

  10.3  There is frustration at the relative lack of progress in making promised freedoms and flexibilities available to councils. The important thing now will be to identify additional worthwhile freedoms and make them available for councils to use.

11.  PART 8—CHAPTER 1—OVERVIEW AND SCRUTINY COMMITTEES—CLAUSE 113

  11.1  The Association supports the proposals to allow councils to co-opt voting members onto their overview and scrutiny committees should they wish to do so. At present legislation only allows for church and parent-governor representatives to sit with voting rights on those overview and scrutiny committees covering education services. Many authorities are already involving, or trying to involve members of their communities, in their overview and scrutiny arrangements.

  11.2  The LGA hopes that any regulations or guidance issued as a result of this clause will not be prescriptive and will allow councils to develop arrangements which meet their and their local partners' needs.

12.  PART 8—CHAPTER 1—LOCAL POLLS—CLAUSE 114

  12.1  The LGA welcomes this clarification—as far as it goes. Local referenda can be a useful mechanism for councils (in pursuing their role as community leaders) to promote local debate or gauge local feeling on important matters affecting the well-being of the local community. It is disappointing that, having taken this opportunity to clarify council's powers to conduct advisory polls the proposal does not extend to these wider circumstances.


 
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