Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Leeds City Council (LGB 16)


  1.1  This submission sets out the comments of Leeds City Council on the Draft Local Government Bill issued on 12 June 2002, as requested by the Transport, Local Government and the Regions Select Committee inquiry.


  2.1  Local Authorities will be able to borrow against future revenue streams for the purposes of capital investment and to refinance existing debt. Powers will also exist to invest for any purpose relevant to its functions but also for prudential financial management of its affairs. (C1)

  Comment: We welcome this initiative, although there is concern that the draft bill does not include any indication of what form Government support for capital investment will take or how the affordability of borrowing will be judged. We also welcome the wider powers to invest, which will give new opportunities for prudential management of authoritys' financial affairs.

  2.2  The main borrowing control will be the duty not to breach the prudential and national limits. (C3)

  Comment: The prudential indicator system is welcomed as a method of control. The Council recognises that there may be a need for the Secretary of State to apply over-riding limits in the national interest, but would hope that such powers would only be exercised in extreme circumstances. The Council would wish to seek further guidance on the use of over-riding limits, in relation to the Council's short and long term cash-flow planning commitments.

  2.3  In addition there will be power for the Government to make regulations about the technical details of borrowing. (C3)

  Comment: The Council welcomes the recognition of the importance of practitioners in developing the regulatory framework, through the reliance on the prudential code being developed by CIPFA, rather than prescribing the detail in regulations.

  2.4  The Government will have reserve powers to impose "longstop" limits on all authorities' borrowing and these would override authorities' self determined prudential limits. (C4)

  Comment: We would question the need for national limits given the prudential code but if this goes ahead we would hope that this reserve power would be used only rarely, if at all (see also 2.3).

  2.5  If an individual authority did not wish to take full account of the borrowing permitted under the national limit, it would have the power to transfer spare "headroom" to another authority subject to a corresponding limit. (C4)

  Comment: It may be that this capacity to transfer headroom is similar to the current arrangements where credit approvals may be transferred, but the wording of the clause and the explanatory notes appear contradictory—the clause implies both authorities would be subject to the national limit, but the explanatory note suggests that the transferee could be subject to its own prudential limit.

  2.6  Credit Arrangements. (C6 and 7)

  Comment: It is not clear how the proposed simplification of credit arrangements complies with the current regulations on what constitutes a credit arrangement. Clarification on relationship between clauses 6 and 7 and the Local Authority Capital Finance Regulations would be welcomed.

  2.7  Capital receipts. (C8,9,10 and 11)

  Comment: Accounting for capital receipts when the receipt is expected rather than when the receipt is actually received should hopefully provide more stability in capital programme planning. Not only will there be more certainty in respect of resources, but we will also no longer have the situation at year end where there can be a rush to ensure that receipts are actually received in that financial year. The proposed pooling of set aside Housing capital receipts might be seen as a disincentive to generate capital receipts although the reality is that the Council cannot influence tenants' decisions to take up a right to buy option. We have concerns that the Council could be disbenefitted by this pooling arrangement.

  2.8  The present rules requiring part of housing receipts to be "set aside" for debt redemption will disappear and be replaced by new arrangements, including "pooling" a proportion of such receipts. This will allow spending to be redistributed from richer Authorities to those in areas with a greater need for new housing investment. (C10)

  Comment: It depends what the redistributive mechanism would do, and what factors it would take into account. For instance, how would it be determined what a high level of receipts in an area are, and, more difficult, how will investment need be determined?

  In areas with ALMO's it would be difficult to justify the top slicing of receipts generated in one part of the authority for the benefit of another part; to justify top-slicing for the benefit of another local authority area will be even more difficult.

  2.9  The mortgaging of property will continue to be prohibited. (C12)

  Comment: The Council agrees that it would be inappropriate to mortgage local authority assets.

  2.10  The new system will as far as possible take standard local authority accounting practices and comments as its starting point thereby avoiding the need for special definitions in the legislation. (C16,C21,C22)

  Comment: We welcome the continued reliance on the accounting codes of practice rather than prescription in regulations.

  General Comments: It is unclear what the impact will be on PFI.


  3.1  The Secretary of State will be given the power to determine the minimum level of reserves. (C25)

  Comment: It is not clear how the minimum level of reserves would be calculated. The Council questions whether such a power is necessary, but if it is, it is important that the minimum is set at a realistic level and allows some flexibility to take account of individual circumstances.

  3.2  The authority's chief financial officer is required to make a report to the authority when it is considering its budget and council tax. The report must deal with the robustness of the estimates and the adequacy of the reserves. (C26)

  Comment: An assessment of the robustness of estimates and reserves is an implicit part of the budgetary process and the proposals would do no more than make this assessment explicit. However, at present the assessment is a judgmental process and it is suggested that the professional bodies be asked to develop guidance on this.

  3.3  The Office of the Deputy Prime Ministers outline of provisions in the Local Government Bill states that Councillors will be required to take a role in budget monitoring. Statutory duty to monitor the budget from time to time during the year. (C27)

  Comment: The Council welcomes this proposal as a way of ensuring that members are fully engaged in the budget monitoring process. We welcome the fact that the relevant clause avoids prescription in the form and timing of reports.

  3.4  Amendment of Section115 of the Local Government Finance Act 1988 to enter into certain agreements during the prohibition period.

  Comment: Although we would anticipate that this power would be used by very few authorities, the Council recognises that it may help authorities manage severe financial crises more effectively.


  4.1  RSG and NNDR will be merged and called "Formula Grant" (C30).

  Comment: We are concerned that it appears to be a step further away from the possibility of returning business rates to local control.

  4.2  Where the net capital receipt is less than the local authority's housing attributable debt, the Department will agree with the local authority that on the condition that the authority extinguishes debt with the Public Works Loan Commissioners ("PWLC") to the level of its net reserved capital receipt, the Department will make a payment to extinguish the remaining housing attributable debt. The Department's payment is dependent on the local authority's payment having been made. The Department's payment is known as an "overhanging debt payment" (C48-C49).

  Comment: Accepted


  5.1  A BID allows for additional services or improvements of benefit to the local community that will be funded by a levy raised in addition to the non-domestic rate.

  Comment: The Council welcomes the development of the BID proposals, but is concerned about the complexity of the voting and administrative arrangements. The greater the complexity the less likely it is that BIDs will be set up. There is still uncertainty over how the levy would be calculated and accounted for.


  6.1  Draft rating list to be published six months in advance instead of 3. (C68)

  Comment: This measure should help local authorities in preparing for annual billing and in preparing estimates for the NNDR1 return. It should also help businesses to plan future costs more effectively but this, of course, depends on details of the transitional relief scheme also being made available in advance.

  6.2  Small business rate relief to be funded by a supplement on bills of other rate payers. Therefore there will be two multipliers one small business non-domestic rating multiplier and the other non-domestic rating multiplier. (C69)

  Comment: We welcome the relief for small businesses as a way of boosting the local economy at the grass-roots level but we believe than the RV limits may be set too low. Analysis in Leeds suggests that only businesses occupying the smallest properties would qualify for the full 50 per cent reduction, we therefore suggest that consideration should be given to raising the lower limit from £3,000 to £5,000 and increasing the upper limit from £8,000 to £10,000.

  6.3  Change in the multiplier annually to reflect erosion of the list. (C70)

Comment: We accept that there may be a need to change the multiplier but this will be at the loss of predictability. One of the fundamental principles of the NNDR system was that businesses would be able to predict their future liability because the multiplier would rise in line with inflation. This will no longer be the case.

  6.4  Transitional relief in the year of revaluation to be self financing. (C71)

  Comment: Whilst we understand the desire for the system to be self financing, we are concerned that the system must not impose heavy burdens on those businesses which would otherwise have benefited from reduction in rates payable. The system also needs to be easily explicable and to "unravel" completely before the next revaluation to avoid transition upon transition. It is also important that details of the scheme are released as early as possible so that revenues billing systems can be amended in time.

  6.5  Rating of meters to be included. (C72)

  Comment: This proposal would, presumably, prevent some erosion of the tax base and ensure fairness of treatment between utilities and their competitors, but we are not sure of its practical impact.

  6.6  Certificate is no longer required as proof of entitlement to exemption on the grounds of religious worship. (C74)

  Comment: The removal of the certification requirement could lead to uncertainty and an increase in the number of exemptions which would erode the tax base, but the effect is unlikely to be significant.

  6.7  Adjustments for hardship relief. (C76)

  Comment: We welcome the clause for unforeseeable events such as foot and mouth disease, etc.


  7.1  Revaluation cycle to take effect from 1 April 2007 and thereafter at least every 10 years. (C79)

  Comment: A fixed revaluation cycle would be preferable to ensure certainty. However, 10 years may be too long, given the historic volatility of the housing market a seven or eight year cycle may be more appropriate. We would also question why the next revaluation is to be delayed so long. Could it not proceed along the same timetable as that for Wales and be effective from 1 April 2005?

  7.2  The Secretary of State will have the power to change the number of bands at the time of revaluation. (C80)

  Comment: Research by SIGOMA and others suggests that revaluation must be accompanied by reform if equity is to be maintained in the administration of council tax. The power to vary number of bands (coupled with the existing power to vary the proportion between bands) is vital to delivering reform.

  7.3  Transitional Relief arrangements. (C81)

  Comment: Our only comment on this is that the proposals seem under developed and ill-defined compared to the proposals for business rates.

  7.4  Exemption of students from joint and several liability. (C85)

  Comment: We have had a number of difficult cases in relation to joint liability for students and we wholeheartedly welcome this proposal.


  8.1  Payment of the Subsidy. (C88)

  Comment: The Council welcomes the proposed removal of rent rebates from the Housing revenue account so that it becomes a purely landlord function account. However it is imperative that an appropriate level of subsidy is transferred with rent rebates so that there is not a net transfer of resources to the detriment of either an authority's HRA or General Fund.

  8.2  Calculation of the Subsidy. (C89)

  Comment: The clause sets out a number of factors that may be considered in the determination of HRA housing benefit subsidy. Whilst recognising that the Secretary of State will want to allow himself considerable leeway to address various circumstances, there should also be transparency with a clear statement advising how the level of subsidy for an authority has been determined.

  The assumptions made in the determination of HRA housing benefit subsidy need to be realistic and reflect current operational conditions. The credibility of current HRA subsidy has been severely undermined by the divorce of the subsidy assumptions from operational reality.

  It has been indicated that it is intended to establish the level of subsidy to be paid to an authority in advance to facilitate an authority's budgeting decisions. To do this notification ought to be made in late summer or early autumn prior to the new financial year in order that any resource implications can be properly considered in formulating a detailed budget strategy for the new year.

  8.3  Overpaid Subsidy. (C91)

  Comment: Any interest applied to overpaid subsidy should not be charged at excessive, punitive rates.

  8.4  HRA business plans. (C95)

  Comment: It is proposed that HRA business plans will have to be compiled and submitted in a specified manner. It is hoped that there will be continuity with current recommended practice and that any required data to be included will take into consideration current information requirements otherwise current data information gathering processes will have to be created or modified, which may have resource and time implications.

  8.5  HRA subsidy : payment and calculation. (C96)

  Comment: The Council welcomes the proposed flexibility to target additional subsidy to authorities with better services. There should also be leeway to target additional resources to authorities facing greater and more complex social pressures.

  However if HRA business planning is to be robust and authorities are to be able to assess the longer-term future strategically, care needs to be taken by the Government to avoid radical fluctuations in the level of an authority's subsidy from year to year.

  8.6  HRA subsidy : negative amounts. (C97)

  Comment: The Council welcomes the proposed negative subsidy arrangements. This would be a necessary mechanism to ensure that national public housing resources are targeted nationally to areas of greatest need.

  8.7  Local authority housing rents. (C99)

  Comments: This measure is welcomed to facilitate local authorities' compliance with the rent restructuring policy.


  9.1  Power for best value authorities to be able to charge for discretionary services and to trade.


  Comment: Whilst the Council welcomes the proposed freedoms, the proposals will not give local authorities any greater powers to provide services. The Council is concerned that the powers to trade are to be linked to CPA performance.

10.  OTHER

  10.1  The three measures to be added to the bill.

  Comments: The Council particularly welcomes the proposals to give billing authorities discretion over council tax discounts and exemptions. More generally we are concerned that other initiatives, notably the proposals for giving greater discretion on the provision of information with council tax bills, should not be forgotten in taking forward the draft bill and the ongoing review of revenue grant distribution.

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