THURSDAY 11 JULY 2002
Andrew Bennett, in the Chair
RT HON NICK RAYNSFORD, a Member of the House, Minister for Local Government and the Regions; MS PAM WILLIAMS, Divisional Manager, Local Government Finance Directorate, and MR STEPHEN BRIODY, Legal, Local Government Finance Directorate, examined.
(Mr Raynsford) I am Minister for Local Government and the Regions. I am accompanied by two officials from my Department, Pam Williams and Stephen Briody, and between us we will try and answer any questions that you have. As an introduction can I briefly say that this is a very important part of our overall agenda for the reform of local government: we want to extend freedoms and flexbilities, to reduce the extent to which local government is restricted unreasonably by government controls, but that has to be within a framework which encourages high standards of performance and rewards achievement. We see this, therefore, as very much part of the overall package set out in the White Paper that we published last December. We are very grateful to you for arranging this inquiry and we apologise it has been at short notice but we felt it was better to at least get a draft bill out to allow this opportunity rather than to produce a Bill itself without having the benefit of preliminary scrutiny, and we appreciate very much the effort you have made to allow this inquiry to take place in the very limited timescale.
(Mr Raynsford) Perhaps I can say straight away that in my experience, having been firstly a Minister in the Department of Environment Transport and the Regions, then more recently a Minister in the Department of Transport Local Government and the Regions, and now a Minister in the Office of the Deputy Prime Minister, the only Minister to have gone through all three of those, it certainly does not feel to me in any way like that description. There are inevitably some rough edges in any change of responsibilities but I have to say the Department is working very positively indeed and there is certainly no question of disruption or attention being diverted from our main priorities as a result of the formation of the office of the Deputy Prime Minister. On the contrary, I believe we have a new and very positive spirit in our Department.
(Mr Raynsford) No. A number of people are still working in the same desks they were working in before because we have the new Secretary of State for Transport in the Department whereas the Office of the Deputy Prime Minister himself is in Whitehall.
(Mr Raynsford) The actual physical location of officials and indeed ministers, because ministers are going to be moving in due course as well, will happen over the next few months but it is not something that will disrupt the work of the organisation. The grades and the role of officials are decided and the work is going on, as I said earlier, in a very positive spirit.
(Mr Raynsford) My reading of the view in local government is that this is seen as a step in the right direction.
(Mr Raynsford) Clearly some people want to see us moving at a faster rate than we are but there are very few people in local government who have said to me that this Bill is not an improvement on the previous framework. Some would like to see us going further and faster. We believe we have moved rather rapidly because, as you know, the White Paper was only published last December; we are currently moving on a number of different fronts simultaneously, introducing this new draft Bill, introducing the new grant distribution formula and introducing the comprehensive performance assessment framework, all three of which are major operations and all three of which are going ahead in parallel. We believe this is part of the new relationship: it is not going to be welcomed enthusiastically by everyone because people have higher aspirations but I do not think there is a strong body of opinion in local government that is opposed to this Bill.
(Mr Raynsford) If I may say so, it is the very nature of people giving evidence in front of a Select Committee not to over-enthusiastically welcome something that they want to see go even further. This is the very nature of political presentation. On the serious point about relationships, however, I think there is a new and better relationship but it is one where trust has to build up gradually step by step, and I think this Bill will help to reinforce a relationship of trust. Certainly at the Local Government Association conference in Bournemouth last week I felt a much more positive relationship with not just councillors from all political parties but also senior officers in local government than I felt a year before at the Harrogate equivalent. That does not mean to say there is not a lot further to go but I think we are moving in the right direction.
(Mr Raynsford) I would not accept that because the freedoms set out in this Bill were the freedoms as described in the White Paper. We have not reneged on any of the commitments in the White Paper: we are proceeding with them: and inevitably there are some safeguards that go with greater freedoms. Some concerns have been voiced about some of the issues relating to levels of balances and reserves that local authorities maintain. That is an inevitable consequence of giving greater freedom to local authorities to determining their borrowing, because if there was not a safeguard in place then the kind of problems we have encountered - not very often I have to say but in individual authorities and I will mention both Hackney and Walsall, authorities that have got into serious difficulties, we do not want to see that problem repeated. There has to be a safeguard. So that safeguard is there but the freedom is going to be enjoyed by hundreds of local authorities: the safeguard is only to guard against possible failing by a very small number. That seems to me to be a framework that is responsible and in line about what we are say in the White Paper, and it brings real benefits to local government.
Mr Betts: We have had evidence on how the 2000 Act is working, and they have got obsessed with processing, local councils have got bogged down in looking at management systems and how they work rather than at local communities, and we have evidence that on the various regimes for inspecting and assessing local authorities chief executives are taking virtually half the working week on those issues alone - there are so many rules and procedures and prescriptions from the centre from legislation from within this government's lifetime as well as beforehand --
Sir Paul Beresford
(Mr Raynsford) I have to say your experience as a Minister in the previous government will have undoubtedly equipped you to understand the level of controls that government exercised over local government, and I do not recognise the description, frankly, you are giving to me now of what we are doing. These measures are deregulatory. Borrowing approvals were introduced by your government. These measures allow local authorities to borrow against a prudential framework which allows the authority itself to determine whether or not it can prudently borrow without incurring debts that it would find difficulty in repaying. I said in response to an earlier question that there have to be fallbacks, and one is against a situation where the national economic position requires a government to take steps to limit overall public indebtedness. No responsible government will not have that ability to control the overall level of debt in its country and that is why the safeguard that you have referred to is in place, but that will only be used in an extreme situation where there is a major overriding national interest. In the vast majority of circumstances, the overwhelming majority, that provision will never be used but local authorities will benefit from the freedom to borrow which they did not enjoy under the government you were a member of.
(Mr Raynsford) On the revenue side authorities will be able themselves to determine what revenue resources they have and, if you look at other parts of this legislation, you will see greater freedom, freedom to trade for high performing authorities, freedom to make charges for discretionary services - a series of freedoms that were not offered by the government of which you were a member.
(Mr Raynsford) I have to say we are, as I answered earlier, giving freedom to local authorities. The borrowing approval regime --
(Mr Raynsford) I am trying to answer the question. The borrowing approval framework is being abolished for all local authorities; there will be freedom for all local authorities to borrow against the prudential regime. The safeguard is there to guard against the possible abuse of that freedom by a very small number of authorities - I mention two that have had serious difficulties recently. We do not think there will be many; we think it is necessary to have those safeguards. There is a separate issue about additional freedoms which will be available to those authorities that can demonstrate high performance, but that is supplementary to the general freedoms we are extending to all authorities.
(Mr Raynsford) The draft Bill which your Committee is considering is part of the process of extending freedoms. The comprehensive performance assessment is also being introduced to the same timetable. We are advancing on all fronts with no bias in favour of one particular element in the White Paper as against another.
(Mr Raynsford) I have to say that at my attendance at their conference in Bournemouth last week and perhaps more importantly at the central local partnership only yesterday I heard the senior representatives of the Local Government Association expressing considerable satisfaction at the progress being made by the government on implementing measures that they very much welcomed to give greater freedoms and flexibilities and to improve the relationship between central and local government.
(Mr Raynsford) There are always some people who will take a pejorative view of what is happening but I think if any fair-minded person asks the generality of those involved in local government, whether councillors or senior officers, they would say that we are making good progress. Some people would like to see us move faster, I accept that.
(Mr Raynsford) We will be making an announcement in the very near future about our programme for halving the number of plans that local authorities are required to make. That is a real measure of deregulation on which we are committed to making real progress.
(Mr Raynsford) I cannot off the top of my head give you a precise figure but I can certainly ask officials to do so.
(Mr Raynsford) I think it is more than that but certainly we are committed to halving the number of statutory plans that authorities are required to comply with.
(Mr Raynsford) We have already announced our intention to constitute this review in the reasonably near future. We are doing preliminary work at the moment analysing the number of options on which detailed preparatory work is necessary so when the review begins it has the basis of sound research. I hope to make an announcement in the reasonably near future about our timetable for this review. I cannot at this stage anticipate when it will report because it will be dealing with very involved and complex issues, but it is certainly high in our priority list as one of the ways of carrying forward commitments in the White Paper.
(Mr Raynsford) This is a Bill which does extend freedoms and flexibilities to local government. I have mentioned three specifically and I could mention others but just to repeat those: the new capital finance framework removing borrowing approvals, greater freedom for authorities to make charges in respect of discretionary services, and freedom for high-performing authorities to trade. Those are significant freedoms and have been widely welcomed by local government.
(Mr Raynsford) I have to say I think that is reflecting a past view and, as I said in response to an earlier question from Mr Betts, the progress, the change of relationship will probably take a little time for the consequences really to work through and people to feel confident about the new relationship.
(Mr Raynsford) But I see an awful lot of chief executives of local authorities and SOLACE is a representative organisation. I have to tell you what chief executives say to me privately does not confirm the view expressed to you. A lot of chief executives of a very wide range of authorities are quite open about the fact that they believe this government is improving the relationship between central and local government: they welcome measures such as the new capital regime, the new freedoms and flexibilities; a number of them are saying to me quite openly that they welcome the new comprehensive performance assessment because it will help to drive higher standards in their own authorities, and they want to see us continuing to make progress on this agenda.
(Mr Raynsford) I think it almost inevitable that you would highlight the new powers given to the Secretary of State, and I can say quite openly there are a number --
(Mr Raynsford) I cannot precisely because --
(Mr Raynsford) Let me explain why. If you take the business improvement district area, that is probably where there is the largest single number of new powers for the Secretary of State to do things by regulation. We have a simple choice: this is a new and innovative framework which we will be trying. We could try to encapsulate in legislation the precise framework that we think should operate in business improvement districts. We have chosen instead to do the bulk of it by regulation because that gives us the flexibility in the event of experience telling us that changes need to be made to make those changes. I accept entirely we could have had a better headline, less new government regulation, if we had tried to do as much as possible on the face of the Bill, but the downside is we have not then got the flexibility to make adjustments if the practical experience of rolling out a new and innovative scheme reveals the need to make changes.
(Mr Raynsford) Because this is an area where there is a need to build confidence and trust between local authorities and business, and you will know the very clear concerns that business has expressed about the whole question of charging businesses - that is why they were strongly opposed to the localisation of the national non domestic rate. Business has accepted the idea of business improvement districts which will allow additional charges to business for defined purposes, but it has to be within the framework where they feel confident about the outcome, and that is what we are trying to build - confidence between business and local authorities. If we simply left it entirely without a framework, I have to say I think we would be hearing quite strong representations from the business community about their worries.
(Mr Raynsford) We see this as a levy which is agreed not in all areas but in some areas where there is agreement between both small and large businesses and the local authority, and I think it would be somewhat cumbersome if agreement on the business improvement district had to be subject to Parliamentary approval in each case. That is why we have done it the way we have.
(Mr Raynsford) The report from the Office of Public Service Reform on the former DTLR takes the form of advice to ministers and no final decisions have been taken on that report and, therefore, I am not I am afraid in a position to be able to share with you the components of that report.
(Mr Raynsford) The decision of ministers will be announced publicly but, as with other advice to ministers, the advice itself will not be published.
(Mr Raynsford) As with all senior management teams in any vibrant organisation one has a mixture of people who have been there for a long time and others new to the job, but people being appointed to a senior position, a position of considerable responsibility, have to have the capacity to learn very quickly and I am confident that the staff within our Department do have that capacity. That is not to say that we do not need to consider some changes, and there probably will be, arising from the OPSR report's recommendations to ensure that we can play a positive role not just as our Department but across the whole of government to ensure a better co-ordinated response from government to local government, and that has been a message that I have heard from many people in the course of last year and local government that they get different responses from different government departments. One of the ways we are trying to address that is through the Office of the Deputy Prime Minister being enabled to co-ordinate better the cross-government response to the needs of local government.
(Mr Raynsford) Well, the official who probably did the greatest amount of work on it I first met in the winter of 1997 when I was a junior Minister and I was meeting local authority representatives who were coming to argue about deficiencies in the SSA. He was a senior adviser at that stage: he remains a senior adviser.
(Mr Raynsford) I do not think that the best value system has fallen into disrepute: I think it has helped to achieve a focus on improving standards of performance, but there have been downsides that I freely shared with this Committee when I gave evidence some time ago and we have been working to try and tackle those. The excessive numbers of inspections, the focus perhaps on process rather than on outcomes, have been key themes that I have been very keen to address not just in relation to best value but also in introducing the new comprehensive performance assessment. The CPA will build on the existing best value regime because it will make use of the results of best value performance indicator information and inspections, but it will also add one crucial missing element which was the overall assessment of the corporate performance of an authority, because the best value regime has focused really on individual service areas, whether that is education, social services or other services, rather than on the corporate performance of an authority. It has become very clear to us, where authorities have been facing difficulties, that it has often been a weakness of the corporate centre, either in terms of senior management or for financial planning or human resources planning, that has contributed to those service failures. So that is what is the new element under the comprehensive performance assessment.
(Mr Raynsford) In terms of the weighting to be given in the assessment?
(Mr Raynsford) We are not proposing to give a separate weighting; we are proposing a framework in which there will be assessments under each of the blocks and then there will be rules that will determine how an authority's overall performance should be assessed.
(Mr Raynsford) Yes. The rules are the subject of consultation at the moment so we have not taken final decisions, but giving weighting would have inherent difficulties, and let me give you an illustration. The education budget is by far the largest single one but the vast majority is spent by schools rather than by an authority. If one were to give a weighting only on the local authority education department's budget it would be relatively small in relation to education as a whole. If it was based on the total education budget, then the performance of schools could well result in the authority benefiting disproportionately, so that is why we believe that a weighting system is probably not the right one. The principle of the rules is that three services in particular are seen as so important that an authority that fails to deliver a decent standard of service in one of those three should not be entitled to be classified as a high performing authority, and those three are education, social services and the financial administration of the authority.
(Mr Raynsford) No, that is a misconception, put around by some people in local government who have not fully understood the proposals put forward by the Audit Commission. The proposal is that if an authority is classified as weak or poor performing in one of those three key areas, it would not be possible for it to be described as a good or excellent authority but it would not be prevented from being classified as a medium or fair authority depending on what terminology is used.
(Mr Raynsford) Let me take that stage by stage. There is a system for moderation in the case of each of those service assessments, so it is possible for an authority to challenge an assessment of its social service performance or its education performance and that is part of the system.
(Mr Raynsford) That is considered by the Audit Commission and that is then determined and forms part of the assessment of that service.
(Mr Raynsford) The Audit Commission itself has a procedure for moderation but that involves a different assessment to the one that has been made by people who form the initial assessment, so it is within the same body but it is not the same people who have carried it out.
(Mr Raynsford) This is wider than just the Audit Commission because part of the whole process is that the inspection team should comprise a senior councillor and senior official from another local authority, so it is not just the Audit Commission; there are other peers of the local authority forming part of that assessment. They will be involved obviously in consideration of the assessment. When those assessments have been made for each of the service areas under the proposals the Audit Commission has put forward, the final assessment is based very rigorously on putting together all of those assessments. If you were to have an appeal system on that final assessment, what you would be doing is appealing against the earlier decisions on the individual service blocks that have already been subject to a moderation, so it would be undermining possibly the outcome of the earlier appeal system. That is why it would not in our judgment be sensible to have a final appeal procedure.
(Mr Raynsford) We have taken the view, and I think it is the correct one, that the assessment should be carried out by a team of people including a politician and a senior officer from another authority but that it should not be an independent assessment by the Audit Commission. It should not be subject to political decision either by ministers or by councillors because we believe otherwise there is a danger that the process will be contaminated, frankly, by political manoeuvring.
(Mr Raynsford) That may well be the case and that applies equally across the board to all parties. One could have a system whereby only politicians from the party that happens to be the majority party in a particular authority could be carrying out the peer role in the inspection team, but if you think about the logic of that that equally is open to a degree of suspicion, that they might be inclined to be more favourably disposed. Our view is that it should not be a key determinant as to which political party they come from. Our view is the key determinant should be their ability as respected senior counsellor in local government to be able to look at the performance of another authority with both the insight of an experienced counsellor and with the degree of impartiality that one would expect from someone in that position.
(Mr Raynsford) The first issue to cover is the change to the grant distribution formula which we have announced for consultation. When announcing that I made it clear that there would be a floor introduced so no authority would suffer a loss of grant. I cannot say at this stage what the level of the floor would be but it is our intention to avoid a position where any authority faces a reduction in its grant as a result of the change. Secondly, concerning special pressures which create very real difficulties for authorities, that is something we are looking at at all times - whether they be the example of asylum seekers or social service pressures or other particular service pressures. Our objective is to ensure that authorities do have adequate resources to cope with the pressures they face: that is a constant subject of discussion between us and the Local Government Association and individual authorities, but certainly in the case of assessing the performance of an authority an experienced inspection team would have regard to unforeseen pressurse that that authority faced for which there was inadequate provision, and that is something I know that the Audit Commission will want to ensure that its inspectors are sensitive to. That is not the same as saying one has to make allowances all the time; that would be a mistake. We want the system to be rigorous and demanding because it is about raising standards but it is also about common sense in assessing the performance of an authority and understanding the context in which they are operating.
(Mr Raynsford) The difficulty with this issue about the revenue grant formula is that every authority sees the need for increased grant. No authority willingly says, "Actually the grant level has been pitched too high", but logically, if you think about this, the arrangements that came into place 10-12 years ago with the SSA formula are out-dated. We all recognise there has been a need to update that. Some of the indicators were perverse; some of the measures were not appropriate. As a result of those changes some authorities are going to do better than others. It is slightly difficult to believe that only those authorities that have got too little will be affected: that there will not be any authorities that have done rather well under the previous formula that will not do quite as well now under the new arrangements, but if you think about this logically that must be the consequence.
Chairman: Unless there has been underfunding all round?
(Mr Raynsford) My recollection of the social service exemplifications in the case of Surrey is that Surrey did rather well in the proposed changes, and rather than facing the prospect of loss it faced the prospect of --
(Mr Raynsford) Our endeavour is to try and ensure that the financial assessment through the grant distribution formula does provide for the authority's needs in as accurate a way as possible, and I have to some extent to guard against being too precise because everyone here knows the difficulty of a formula applying. Having done that, we expect authorities to work within their budgets: we expect them to manage, whether they are facing problems of growth or contraction, efficiently and well. The comprehensive performance assessment will gauge their management performance. No authority is going to be free from pressures: all authorities will in certain areas face pressures. Whether those pressures increase demand for service or whether it is declining population needing contraction, those are pressures authorities will inevitably face like any other organisation managing its affairs, but we expect authorities to do that efficiently and the comprehensive performance assessment is about measuring whether they do or not.
(Mr Raynsford) As I explained earlier, the existing best value indicators and the inspections are measuring the performance of individual services. The new ingredient in the comprehensive perform assessment is the corporate assessment of the management of the authority as a whole. Both are taken into account in the assessment, and what the grid which the Audit Commission is developing is seeking to do is to measure both the level of service delivered, the performance of that service delivery on the one side, but also the ability of the authority to manage its affairs efficiently and improve and deliver a better service in the future.
(Mr Raynsford) I do not agree. I think it is right that there should be both an assessment of the overall performance but also of the individual components. If I can be slightly flippant, as and when the Audit Commission's report on Walsall was published, the local newspaper recognised very clearly the Audit Commission's conclusions. It invited its readers to respond; on the basis of those responses they warmly endorsed the Audit Commission's conclusions with a headline which I remember to this day which was, "The bin men are wonderful but the rest are rubbish". But that identified both successes in the authority and overall weaknesses and that is what we are seeking to do.
(Mr Raynsford) That is not the case. Again, there has been some misunderstanding on this. There will be some additional freedoms that will be only available to those authorities that achieve --
(Mr Raynsford) If I can come on to trading in a moment, there will be some additional freedoms such as light touch inspection and greater freedom over plans that will be available to authorities that achieve the highest standards overall. There will be areas such as trading where we want to extend freedoms to those authorities who demonstrate a high performance in that particular area, so the fact that an authority is not overall doing that well would not preclude a high performing department within the authority from getting greater trading freedom.
(Mr Raynsford) Yes. The inspectorate forum is doing a very good job in trying to ensure that there is greater consistency and better understanding between the different inspectorates. Certainly we want to see that achieved and that is the purpose of the forum.
(Mr Raynsford) I think there may well be an increased opportunity for inspections to cover wider areas than just the rather narrow service areas that have been the focus in the past. We certainly are encouraging local authorities as part of the best value process to undertake reviews that cover wider services rather than simply within individual silos, and that does point to a case for the inspectorate following similar patterns.
(Mr Raynsford) One of the great advantages will be a light touch inspection regime where authorities are demonstrated to have done well and, again, this is a further example in response to Mr Bett's question, that those service areas where the performance is high will be specifically subject to a lighter touch inspection regime in the future.
(Mr Raynsford) It implies that one is focusing the inspection where it is felt there is the greatest need - not that it is heavy handed but it is targeted towards those areas where performance could perhaps be improved, and that is the thinking behind this whole comprehensive performance assessment process. Each assessment will lead to an action plan which will set out what is necessary to improve those parts of the authority's performance that are felt to be less satisfactory than others.
(Mr Raynsford) I take exactly the opposite view: I took a lot of heart from the local elections this May where I think there was quite clear evidence, and it is probably the first time in my political experience that that has happened, that the electorate reached decisions in individual areas on the basis of an individual authority's performance. Traditionally in the past local councillors have rightly complained that whether they held their seats or lost them often depended on whether their party was popular nationally or not. There is quite a wide variation this time in terms of the performance of individual authorities in the same region, some of whom clearly got a much better response from the electorate than others, and if you look at those in relation to the evidence we have got of the performance of authorities, there is certainly a quite strong indication that good performance was rewarded and poor performance was punished. I think that is terribly encouraging and I think any council leader should look with enthusiasm at the comprehensive performance assessment as a way of trying to ensure that their authority is performing well and reaps the rewards.
(Mr Raynsford) We are always in a difficult position because for most of the past nine months I have been pressurised by local government to slow down the implementation of the comprehensive performance assessment but to speed up other parts of the package. I am trying to move ahead as far as I can on the whole White Paper package. We think that the timetable for the comprehensive performance assessment is achievable; it is demanding but to slow it down in our view would be a mistake.
(Mr Raynsford) I have absolutely no evidence to suggest that is the case and, if people allege that, I think they should substantiate it with hard evidence but I have to say I do not believe that is the case at all.
(Mr Raynsford) Perhaps I can give one illustration. Over the past year when I have been Minister for Local Government I have spent a disproportionate amount of my time wrestling with the problems in Hackney. Those are deep-seated and go back a long time. Had there been a proper comprehensive performance assessment framework in place to identify those weaknesses at an earlier stage, I think that authority would have avoided getting into some of the very real problems it has, which makes the recovery a much longer and more painful process than it needs to be. Earlier identification of weakness and action through the action plans which are an inherent part of this process to tackle those weaknesses will, in my view, help to ensure we have less unfortunate stories such as Hackney in the future.
(Mr Raynsford) If a local authority is in serious financial difficulty and cannot manage its affairs it does seem to me a rather odd proposition that they should be given additional spending freedoms.
(Mr Raynsford) The whole purpose of the comprehensive performance assessment is to ensure that local authorities deliver high quality services to their residents so those communities do get the benefits of efficient administration by their local council.
(Mr Raynsford) We will be publishing a further paper in the near future about how we intend to carry forward our intervention role spelt out in the White Paper.
(Mr Raynsford) What I was about to say was that we are obviously learning from our experience in Hackney and Walsall. With Hackney we have intervened: with Walsall we have been advised by the Audit Commission that intervention might be appropriate but we have allowed the authority an opportunity to respond to the Audit Commission's criticisms before we decide whether or not to use our intervention powers. That is the position at the moment. We are taking stock in the light of those two cases, and also our experience elsewhere, and will be publishing in the near future our proposals of how we want to use the intervention powers --
(Mr Raynsford) I would hope this would be within the next two months.
(Mr Raynsford) The individual inspections carried out by specific inspectorates are the responsibility of the relevant departments, so for the Social Services inspectorate you have to seek the view of Social Services ministers. Since I am overseeing the comprehensive performance assessment that will judge the overall performance of all authorities, building on those individual subject inspections, I have no reason to form a view at this stage that any particular percentage of local government would fit into any one of the categories.
(Mr Raynsford) I think it is fair to say as you have highlighted the Social Services area, which is the responsibility of the Department of Health, that there are real social service needs that are not being adequately met for a variety of reasons - some of those are to do with organisation, some may be to do with finance. As we discussed earlier, we know about financial pressures on social services. What I am trying to do is get in place a framework which assesses in a rigorous but firm way the overall performance of local authorities to improve that performance and to ensure that people locally get a higher standard of service from their council.
Sir Paul Beresford
(Mr Raynsford) The overall approach that I have spelt out is one in which we will be tailoring the level of inspection to the performance of individual authorities, and that will both reflect individual service areas but also the overall corporate performance. I have no reason to believe that a particular percentage of local authorities will fall into any one category.
(Mr Raynsford) I do not think they require any encouragement to take action where they believe that social service departments have not been achieving sufficiently high standards. Our concern is to ensure that the overall corporate health of the authority is also taken into account because in some cases that could be a major contributory factor to a particular failing in one service area. That is my overriding priority, to ensure we have an overall picture of the performance of the authority as a whole, taking account of its performance in individual service areas which, as you all know, can vary. Some can be very good, even if the authority as a whole is not doing well.
(Mr Raynsford) It is a draft Bill for consultation and obviously we will take full -
(Mr Raynsford) We will take full account of the views expressed on it but I have to say this is not a major policy change. All we are doing is seeking to pull together two separate streams which currently provide a grant to local authorities through two separate channels. Our view was it would probably be an administrative improvement to put the two together, but I have heard the fears and anxieties and we are particularly conscious of the wish to maintain transparency. So can I give you an assurance that we will be maintaining an absolutely transparent structure so people will know exactly what sums are attributable to which of the two streams, though we still believe there are benefits in administrative terms of merging the two together.
(Mr Raynsford) Let me reassure you that is not the consequence of the changes we are proposing because, as I have indicated, we will be separately identifying what comes through each of the two streams, and therefore there is no consequence from this proposal that would prevent a future government, if it so decided, to restore the national non domestic rates to local discretion. However, I must make it clear we do not believe that is appropriate. We have set ourselves against doing that and we have no reason to change that particular stance.
(Mr Raynsford) What we want to do is explore the arguments and they are interesting, complex and quite difficult ones, about the balance between the two, the gearing consequences for local government, and whether there would be benefits in terms of greater local accountability as a result of changes, and to look at ways in which the balance might be altered if the conclusion is that this is the right thing to do. It is an open-ended review; we will not approach it with any preconceptions; and we certainly will not be ruling out the possibility of increasing the proportion of funds raised locally if it is concluded that that is the right thing to do as a result of the review.
(Mr Raynsford) We are doing preliminary work at the moment looking at the technical issues that need to be covered so that when the review is constituted it has the basis of proper research on which it can consider the issues and reach decisions. I would expect to be able to make an announcement later this year about when the review will be constituted.
(Mr Raynsford) Administrative efficiency.
(Mr Raynsford) It is one of the streams of revenue which is crucial to local authorities for discharging their functions.
(Mr Raynsford) It is a revenue stream, and under any foreseeable framework we would want to ensure an equalisation between authorities because, as all members know, some authorities have got very much larger non domestic rate basis than others and it would be unfair if they benefited from that advantage and those with a relatively low non domestic base suffered.
(Mr Raynsford) The consequence of a spending assessment framework is that a grant is then awarded to local authority.
(Mr Raynsford) The NNDR is an income stream but --
(Mr Raynsford) No. SSA is a mechanism used to distribute grant between authorities. It measures the need to spend authority by authority.
(Mr Raynsford) If the two are administered together there will be savings in terms of administrative efficiency and that is the reason for doing it.
(Mr Raynsford) It will be an income stream to the local authority --
(Mr Raynsford) Whatever it is called, a grant or an income stream, I am not particularly concerned.
(Mr Raynsford) It will be income stream comprising the revenue support grant that flows from the formula and the appropriate element of the national non domestic rates.
(Mr Raynsford) We obviously will listen to that because, as I said in response to the Chairman's earlier question, we see some administrative saving from doing this without in any way pre-empting future policy decisions on the future of the NNDR.
(Mr Raynsford) I cannot offhand but I can write to you with estimates.
(Mr Raynsford) I have never known local authorities that have not been seeking additional sources of finance but I have to say the purpose of the business improvement district is agreement between the local authority and the businesses within its area about how additional revenue raised from business might be applied to improve not just the business prospects of the area but the general environment and the quality of life in the area.
(Mr Raynsford) We are committed under this draft Bill to produce guidance, and we will be doing so, certainly.
(Mr Raynsford) This is the inevitable consequence of the different structure of business taxation in the UK to America, where the business improvement district idea was originated, where it is the property owners who pay the local taxes. Unless we were to devise a new taxation system, there is no way that we could raise the finance from the property owners. Therefore, our view is that the right way forward is to use the existing business taxation framework, which is the rate which applies to the tenant, but to encourage a voluntary participation by the land owners, a number of whom have advised us that they would be very happy to do so. We think that if they come in at an early stage and indicate their willingness to make voluntary contributions this will help to build confidence among the tenants, the retailers, and will make a yes vote in any referendum more likely and therefore the success of a bid more likely.
(Mr Raynsford) I do not want to give a forecast.
(Mr Raynsford) I am not someone who plucks figures out of thin air. I would be disappointed if we did not have a significant interest in a number of different areas in the country. Talking to both business and to local authorities in many, many different areas, I am reasonably optimistic that there will be a real take-up for this new concept.
(Mr Raynsford) The problem about any scheme of this nature is that people want to have a rebate scheme or a transitional relief scheme and then do not want to have to make any contributions, so they expect the general tax payer to make the contribution. However, if they are presented with a request for an increase in tax, they take a very different view. If we want to see a proper framework that does ease in the introduction of revaluation, the right way to do that is the same way that we applied with the floors and ceilings in the case of revenue support grant to local government, the thing being self-financing with the assistance to those who otherwise would lose being paid for by those who otherwise would gain very substantially. It does not seem to me to be an unreasonable principle.
(Mr Raynsford) We will, like other major initiatives, obviously monitor it but it is probably too soon for me to describe the actual monitoring arrangement. We have not yet got to the stage of introducing the legislation and we will need to think about what the right way to monitor it is as and when we have got to that point.
(Mr Raynsford) If I can say this slightly facetiously at the start, it is really good to hear that you recognise this as something that many people thought would never come and then I put against it the view that this is a disappointing Bill. I would have thought this was a cause for congratulation. However, we think there is a need for a safeguard against a possible position where, in the national, financial interest, the government had to take action to limit the overall extent of public borrowing. It would be odd in the extreme if local government borrowing, which accounts for something like 25 per cent of the total nationally, were to be wholly excluded from any controls or safeguards which government exercised in such a situation. We do not think it is likely to happen. It is very much a back-stop but we think it is prudent to put it in place. As far as individual authorities are concerned, this is a safeguard against an extreme situation where an authority might otherwise get into very serious difficulty. As I said in response to an earlier question from Mr Cummings, had earlier action been taken, for example, in the case of Hackney, some of the rather serious consequences in terms of financial difficulties might have been avoided. In extreme cases, I think this is a necessary safeguard but it is just that: a back-stop, not part of the normal, day to day operation of the scheme.
(Mr Raynsford) I hope I have made it explicit this afternoon. I do not know whether parliamentary counsel could draft that or not but if it helps I will put it on the record here that that is the intention.
(Mr Raynsford) I would have no objection but I suspect parliamentary counsel would feel this was unnecessary to spell out exactly ----
(Mr Raynsford) No. The problem would be trying to encapsulate in legislation a full explanation of why any particular provision was necessary, which I think would probably produce very over-cumbersome legislation in the future. It is normal for ministers to make a clear declaration of the purpose of legislation when presenting it and for legislation to give effect to those policy intentions. I hope I have done that.
(Mr Raynsford) No, because the revenue implications are on balance sheet in those cases.
(Mr Raynsford) It is quite clear to us now that the situation in the London Borough of Hackney has deteriorated over a series of years and CIPFA guidance which should otherwise have been followed was not.
(Mr Raynsford) If we are removing the existing borrowing approvals, which we are, and allowing greater freedom to borrow, it is necessary to have a safeguard as a back-up to avoid individual authorities in such circumstances borrowing where they are in breach of the CIPFA code.
(Mr Raynsford) We think it is right and prudent to have that safeguard in place to deal with circumstances where an authority might otherwise get itself into a serious position of indebtedness. I do not think it is any particular advantage to fall back on the reassurance that the authority has broken the law after the event. It would seem to be better to prevent that happening in the first place.
(Mr Raynsford) Under a PFI or PPP scheme, there has to be a proper, rigorous assessment of the financial advantages of that as against a traditional framework. This public sector comparator principle will continue so a PFI scheme will only get the go ahead if it can demonstrate that it is going to be value for money.
(Mr Raynsford) It is not our intention to change the fact of support for capital investment by local authorities. We have said in the White Paper -- indeed, that was said in the earlier Local Government Finance Green Paper of two years ago -- that we were looking at different possible arrangements, either a capital as against revenue support for capital borrowing, but that will continue, whichever formula is adopted. Any supported borrowing will continue to receive support. It will only be unsupported borrowing that does not get a subsidy. That is a freedom that we are extending to local government by giving the opportunity for unsupported borrowing in addition to that which would otherwise qualify for support.
(Mr Raynsford) This again is an important safeguard and the reason that we are introducing this is that the evidence we have had from the Audit Commission is that the level of reserves in a number of authorities is dangerously low. A year ago, the Audit Commission reported some ten per cent of authorities had reserve levels that they were concerned about the adequacy of. The latest indications we have from the Audit Commission is that the figure is now around 12 per cent.
(Mr Raynsford) The financial position in Walsall has been one of the main factors leading to the Audit Commission's recommendation that intervention should be considered.
(Mr Raynsford) This is very much a provision to deal with exceptional circumstances where there may otherwise be a serious problem. It is not our intention to use this power in the vast majority of cases.
(Mr Raynsford) It is slightly wider than that. The problem is in north Tyneside, Hillingdon and Corby. In all of those cases, the level of reserves available to cope with unforeseen difficulties has been a factor. I do not think it is right to say that this is so small a problem that no action should be taken. We do not think it is a large problem; we think it is only going to occur in a relatively small number of cases but we think it is right to have that safeguard against a situation where an authority could leave itself highly exposed and in consequence get into very serious financial difficulties.
(Mr Raynsford) I am certainly prepared to take that away and consider it. I cannot give you an instant answer now.
(Mr Raynsford) I do not think it does any service to set artificially low reserves and then subsequently have to close services in the course of the year because the authority simply does not have the resources to be able to cope.
(Mr Raynsford) No. I believe it is much better for authorities to plan prudently on the basis of an adequate reserve to cope with eventualities that might occur in the course of the year.
(Mr Raynsford) We have indeed.
(Mr Raynsford) It is partly because the Audit Commission has highlighted the concerns expressed by district auditors that currently some 12 per cent of authorities in their view have set reserves that they regard as potentially insufficient.
(Mr Raynsford) If you continue with the quote, they do say, "However, as part of our recent development of the comprehensive assessment process, we have suggested that authorities might want to regard five per cent of net forecast operating expenditure as a guide for minimum level of reserves."
(Mr Raynsford) The figures we have are that 17 authorities have less than zero per cent of net operating expenditure as reserves. In that situation, it would be in our view imprudent not to have this as a reserve power. It is not something we intend to use in general but as a reserve power for extreme cases this does appear to us to be prudent.
(Mr Raynsford) This Bill is giving substantial, additional freedoms to local government but within a framework that allows the local authority to borrow more against proper, prudential guidelines. In the case of setting its budget, the authority is expected to operate in a responsible way and quite rightly that discretion is largely left to the local authorities.
(Mr Raynsford) We are working in close consultation with the Audit Commission and if we move on to paragraph eight of the Audit Commission's submission they say, "We can see the desirability for the government to have the flexibility to be able in exceptional cases to set a minimum level of reserves in support of intervention." That is what we are doing.
(Mr Raynsford) That certainly is the norm but in exceptional cases, as the Audit Commission themselves state in their submission, paragraph eight, they can see the desirability of the government having the flexibility to be able to set a minimum level.
(Mr Raynsford) Absolutely. The norm is that it should be left to the local authorities.
(Mr Raynsford) The norm is that the local authority itself should take the decision. This is a reserve power for use in exceptional cases.
(Mr Raynsford) In normal circumstances, it will be.
(Mr Raynsford) This is a reserve power for use in exceptional circumstances. Given our experiences, in a small number of authorities where the absence of adequate reserves has resulted in serious financial difficulties as and when the authority has found it does not have the means to meet the costs that it has faced, we felt this was prudent, to include this provision so that we would have the power in those exceptional cases to intervene to require a minimum level of reserves.
(Mr Raynsford) No. This is about housing capital receipts and we will clarify it to make it clear that that is the case.
(Mr Raynsford) I am clarifying it now and we will make absolutely sure when a final Bill is presented that it is clear it applies to housing capital receipts.
(Mr Raynsford) The current arrangement of receipts taken into account does involve authorities being required to set aside a proportion of their receipts and, as you know, we do take those into account when making capital allocations. The effect does redistribute some of those resources from authorities that are receipts rich and do not have the same need to spend to other authorities that have a high need to spend and do not have the same level of resources. I was surprised frankly to hear the evidence given by Wolverhampton. We will look into that but our view is that the new pooling mechanism will have exactly the same effect as the current receipts taken into account mechanism and will benefit those authorities that have a real need to invest and do not have resources on a substantial scale.
(Mr Raynsford) We will do so.
(Mr Raynsford) No, because in general the prime call on capital receipts for local authorities is the improvement and renovation of their existing stock; whereas the provision of new housing to meet the needs of additional households in areas of shortage is predominantly met through the Housing Corporation's budget and by registered social landlords. I obviously cannot anticipate what is going to be in next week's spending review but you will have read the press coverage on that and clearly there is a need to provide more for additional housing in areas of shortage, but that will predominantly come through registered social landlords and the Housing Corporation's budget rather than through capital receipts. I accept that to a degree capital receipts may be used to support registered social landlords through local authority social housing grant, but it is a relatively small proportion of the total application of those receipts.
(Mr Raynsford) We have no intention to make this clause retrospective, so there will be no question of any authority like Waverley being penalised for decisions ----
(Mr Raynsford) They would have been subject to the receipts taken into account mechanism before they were debt free. It is not introducing a new element. We do think it would be slightly odd that an authority should benefit just because it happens to be debt free and should not be subject to the same requirement that applies otherwise to ensure that the receipts are used as a national resource to support investment in those areas where there is a particular high need to spend without the availability of those receipts.
(Mr Raynsford) The authority will not be penalised. It will not be any worse off, but it is buckshee gain that it previously would have been able to achieve because it happens to have got into the debt free position so is treated in a more favourable way than other authorities that will not be there in the future.
(Mr Raynsford) I cannot give a forecast off the top of my head about an individual authority without looking at their finances but this is not going to penalise them by taking away from them resources that otherwise are available. What it will do in future is apply rules that make them subject to the same rules that they are currently subject to as an authority with debt, even if they become debt free.
(Mr Raynsford) What it will do is give greater confidence to chief financial officers if they do have doubts and concerns about the robustness of a budget to set those out before the local authority reaches a decision. That is right and proper, that they should be able to act in a professional way without any fear of consequence to their own position. It is our experience that in some instances warnings have not been given sufficiently early to local authorities about financial difficulties that they might face. It has not happened in any significant number of cases, but we believe it is right that there should be a framework that makes it absolutely clear that chief financial officers should have that obligation, that responsibility and that right.
(Mr Raynsford) We go back to the same names again. In those cases, the councillors who currently are wrestling with the huge financial problems that have followed on from previous mistakes are probably bitterly ruing the fact that safeguards of this nature were not in place at an earlier stage.
(Mr Raynsford) It will not stop that but what it will do is demonstrate that the councillors have acted in a way that disregarded the professional advice of their chief financial officer and that of course would be a very, very serious matter that the Audit Commission will be looking at in the course of the comprehensive performance assessment of that authority.
(Mr Raynsford) You are quite right. It is a members' decision but we think it is absolutely right that the chief financial officer should be clear that he or she has an absolute obligation to raise this matter and this removes any ambiguity about that.
(Mr Raynsford) I accept that entirely, but I do not want to repeat ad nauseam the same names. I have to say that in certain authorities we have seen procedures failing to achieve the results that those professional rules should achieve in ensuring that senior officers are able to speak freely and fearlessly about the financial risks the authority is taking before the authority reaches a decision.
(Mr Raynsford) It would be a tiny number. I am sure the vast majority of authorities have more than adequate arrangements in place, but all of these provisions are to ensure that rigorous standards apply everywhere, because we know from bitter experience the consequence of a failure in a very small number of authorities to behave in the way that all the rest do.
(Mr Raynsford) It is not a new burden that will be burdensome to any well run authority because this will already happen but this will ensure that every authority, including some that have not been well run, maintains the standards of the best.
(Mr Raynsford) The monitoring is something that is going on already. Most authorities already have in place rigorous procedures for monitoring their budget. That is no extra burden at all.
(Mr Raynsford) Unfortunately, that small handful have had a disproportionate amount of attention, not just in this Committee but ----
(Mr Raynsford) We are. Our whole philosophy is that prevention is better than intervention after a problem has arisen and this is all about prevention.
(Mr Raynsford) Our whole approach has been to ensure that the commitment to bring all social housing up to a decent standard by 2010 should be achieved through a range of different approaches. In many cases, this will be done by the authority itself, using its major repairs allowance and its capital resources to improve the condition of its stock. In some cases, there will be a decision to transfer the stock to a registered social landlord. In some cases, authorities will establish arm's length management organisations. That framework is a framework where we have confidence that the target can be delivered. If any of those elements were to be dropped out of the equation, that would certainly raise questions about the deliverability of the objective, but in the case of individual tenants in individual areas they remain free to reach a decision as to what is the right way forward. What we have see is there have been different decisions in different areas. Some have voted in favour of stock transfer; some have bitterly opposed it. That has been the case but it has been compatible with the programme that I have described involving all three elements being taken forward. Provided that remains the case, there should be no problem.
(Mr Raynsford) That would be the consequence, but we have formed our judgment looking at the patterns of tenant ballots over the last few years, and we are quite confident that a substantial number of tenants do see advantages in stock transfer and will therefore continue to vote for it.
(Mr Raynsford) It is and we intend to deliver it. It depends on a combination of factors like many other policies. We will continue to monitor closely how trends develop. I can say at the moment that the current level of stock transfers remains on course so that we should not have difficulty in achieving that target.
(Mr Raynsford) Clearly, were there to be a change, we would need to take that into account but I am not the Housing Minister and I cannot possibly commit Lord Rooker on this.
(Mr Raynsford) No.
(Mr Raynsford) It is different because it remains still wholly owned by the local authority and therefore comes within the ambit of public expenditure. We cannot simply rewrite the rules because this happens to be owned by the local authority.
(Mr Raynsford) No, because in reality, if the stock remains with the local authority, the local authority continues to receive the housing revenue account subsidy for that property. All that is happening in the case of writing off overhanging debt is that a single payment is made in computation of what otherwise would be a continuing subsidy stream in the years ahead. It would seem rather odd for the subsidy to be paid when the authority does not have the stock.
(Mr Raynsford) As you know, I have not been Housing Minister for the last 12 months, so I cannot give you a detailed response but the principle must be right that if a local authority ceases to own property it should not be receiving subsidy in respect of ----
(Mr Raynsford) I am very happy to ask Lord Rooker to send you a note on that.
(Mr Raynsford) No, it is not. Very obviously, one cannot simply change a framework under which housing revenue account subsidy did include housing benefit subsidy to the different framework that we are setting in place without making sure that the overall financial consequences do not disadvantage many authorities that have benefited from the previous arrangements. Those authorities that were in subsidy would lose out substantially were the new rules to apply ----
(Mr Raynsford) This is the responsibility of Lord Rooker rather than mine but I am happy to respond because of my previous association with this policy area. The approach is to take out the housing benefit subsidy element from the housing revenue account for good reasons, because of the complaints that have been made about it and we welcome that; while at the same time not in consequence resulting in a significant redistribution of subsidy in favour of better off authorities at the expense of those who have been in receipt of subsidy under the previous arrangements. That would be the consequence if we did not take the steps that we are proposing.
(Mr Raynsford) Yes.
(Mr Raynsford) Yes.
(Mr Raynsford) It is certainly not our intention to spoil things with regulations and we want to make sure that regulations that are necessary under this legislation are properly considered before they are introduced. Certainly, I will want to see that there is a good opportunity for the key regulations or at least an outline of how we intend to make them to be available for committee scrutiny when the Bill is progressing through parliamentary stages. I would also want there to be a proper opportunity for consultation with the relevant bodies.
(Mr Raynsford) The important ones. There are a large number of very small, detailed regulations and I would not want to be caught out on a mathematical failure to ----
(Mr Raynsford) We will aim to ensure that either the draft regulations or an outline of how those regulations will operate, if they have not yet been drafted, will be made available to the Committee by the time the Bill reaches that stage of detailed scrutiny in its parliamentary passage.
(Mr Raynsford) The issue here is about extending greater freedoms to local authorities to levy charges but at the same time to avoid some of the unfortunate consequences that would flow if an authority failed to understand that this is not something that can be applied to existing services which must be provided free of charge. I am sure you are conscious of the potential scope for misunderstanding, given the very considerable number of different charging regimes that might apply in the future. We want to make sure that local authorities do not use this as an opportunity to introduce charges for services that ought to remain free of charge.
(Mr Raynsford) It does go slightly further than that.
(Mr Raynsford) That will obviously be for you and others to look at when we produce our proposed regulations but the one other issue which is very important indeed that needs to be covered in this respect is the fact that the charges are designed to cover the costs of delivering the service, rather than to provide a buckshee income stream to local government. Trading is an area where we would expect the authority to offer services and possibly to make a return but in the case of charges we believe they should simply be designed to cover costs, not to generate profits.
(Mr Raynsford) We have already made clear our aim, which is to give local authorities a greater freedom to reduce the discount that currently is available on second homes and long term empty dwellings. In the consultation, we set out the possibility either of ensuring that this revenue was available to the relevant authority, which is obviously particularly attractive to those in areas with a large proportion of second homes, or the revenue to be part of the overall revenue of local government as a whole and to be distributed accordingly throughout the normal local government system. The former is unusual; the latter would be more normal, but the former was attractive to those areas that have a substantial number of second homes and we received strong evidence in support. There are however practical difficulties because we only know the proportion of properties that are second homes as a result of people reporting that. If they no longer have a financial incentive to do so, the likelihood is they will not notify the authority that it is a second home. We would be left inevitably with information that was becoming increasingly out of date and that would be an unsound basis for decisions about what proportion of the revenue should go to that individual authority. That is the technical difficulty that we have been looking at and that is why we have not been able to give an instant decision. We are working on it. We are confident we can find the solution but it will require a little more time before we have that solution in place.
(Mr Raynsford) The policy set out in the consultation on long term empty properties was to allow the authority to charge the full council tax on properties that had been empty for an unreasonably long period of time.
(Mr Raynsford) The danger of the approach that you are setting out is one that might allow decisions to be taken on an arbitrary basis that could be challenged if it was seen that one particular area was being treated in a different way to another for no good reason. I think we would need to give further thought to that.
(Mr Raynsford) No. We are confident that can be done without primary legislation. I have already indicated in response to a question from the Chairman that we expect to be able to announce in the very near future our proposals for reducing the planning requirements by 50 per cent. We are working on trying to streamline the best value procedure and we have abolished a substantial number of consent regimes which local authorities were previously subject to and there are proposals for more such abolitions which we will be bringing forward.
(Mr Raynsford) 43 have been brought forward so far.
(Mr Raynsford) I cannot give you an absolute figure but we are talking in significant numbers.
(Mr Raynsford) No. We use the regulatory reform procedure.
(Mr Raynsford) We will continue to work at removing unnecessary regulations. I would be rash to give an absolute commitment to have abolished all by 2004.
(Mr Raynsford) That is very much a concern of my colleagues who are responsible for regeneration activity.
(Mr Raynsford) I would need to consult my colleagues in the DCMS who would be responsible and would have to meet the financial costs.
(Mr Raynsford) No.
Chairman: On that note, can I thank you very much for your evidence.