Select Committee on Delegated Powers and Regulatory Reform Twenty-Third Report


ANNEX 4

LOCAL GOVERNMENT BILL - GOVERNMENT AMENDMENTS FOR REPORT STAGE

Letter from Lord Rooker, Minister of State at the Office of the Deputy Prime Minister, to the Chairman

I am writing to inform the Delegated Powers and Regulatory Reform Committee of my intention to table a new clause to the Local Government Bill at Report Stage in the Lords. The clause would give the Secretary of State in England, and the National Assembly for Wales, power to amend or repeal, by order, any enactment relating to a local authority in the light of generally accepted accounting practice as it applies to local government. Exercise of the power by the Secretary of State would be subject to the affirmative resolution procedure.

Report stage for the Local Government Bill in the Lords has been scheduled to start on 10 July.

The attached memorandum is supplementary to the one already provided on the rest of the Bill by the Office of the Deputy Prime Minister. It explains in detail the reasons for seeking this new clause.

Though clearly a "Henry VIII" power, we do not see it as especially wide in scope. It would be exercisable only in connection with local government provisions to which "generally accepted accounting practice" was demonstrably relevant. As the memorandum explains, that term has a quite restricted interpretation in the local government context and means, in effect, simply the practices local authorities are required to follow by the Chartered Institute of Public Finance and Accountancy. For any use of the power to be justified, there would need to be an identifiable requirement in a published code or standard. That is something which it would be easy for Parliament to check when an order came before it for approval.

The earliest use of the power is likely to be to change the definition of a local authority company. The growing pressure from local government for a modern, all-purpose definition was behind the Liberal-Democrat amendment to clause 18 put down in Grand Committee (Official Report, 4 Jun 2003, Columns GC220 to GC222). We believe that this specific issue is sufficiently important to justify an amendment to the Bill. The new clause will enable the companies definition to be updated as soon as accounting standards offer a suitable foundation.

More generally, the power provides a valuable means of modernising local government financial practice. We see it as a positive response to the former Transport, Local Government and the Regions Committee and to the Commons Standing Committee on the Bill, both of which pressed for closer alignment of local authority finance systems with generally accepted accounting practice. The new clause will allow exactly that kind of harmonisation.

29 June 2003

Supplementary Memorandum by the Office of the Deputy Prime Minister

New clause: Generally accepted accounting practice: power to amend enactments

1. New clause [ ] would give the appropriate person power, by order, to amend or repeal any enactment relating to a local authority if he considers it appropriate to do so in the light of generally accepted accounting practice (GAAP) as it applies to local government. The enactment in question may, but need not, relate to the accounts of a local authority.

2. "Generally accepted accounting practice" is the practice to be adopted by UK companies in preparing accounts intended to give a true and fair view. It is applied to local government in the United Kingdom in a modified form through the "Statement of Recommended Practice" issued by the Chartered Institute of Public Finance and Accountancy ("CIPFA") and the Local Authorities (Scotland) Accounts Advisory Committee (LASAAC).

3. The power to amend or repeal enactments would be used to ensure consistency between the legislation being amended and GAAP. The primary use of the power would be to replace existing statutory definitions or requirements with accounting definitions or requirements. However, there may sometimes be a need to supply a definition for an expression which at present is left undefined (e.g. "borrowing").

4. For example, it could be used to take account of the "Whole of Government Accounts" exercise, which is being led by the Treasury. The aim of this is to produce a consolidated set of accounts for the whole public sector, to meet commitments set out in the Code of Fiscal Stability issued under section 155 of the Finance Act 1988. This will require accounts for all central and local government bodies, including not only local authorities but also those companies in which they have a major interest and certain other entities such as partnerships and trusts. The entities to be included in a local authority's group accounts would be determined by GAAP. To be effective, borrowing controls under clause 4(1) of the Bill would have to apply to all entities which are required to be included in an authority's group accounts. Clause 18(1) allows this to the extent that the borrowing controls can be applied to local authority companies as defined in Part 5 of the Local Government and Housing Act 1989. But the Part 5 definitions exclude some companies which GAAP would include (in particular companies where the local authority has less than 20% of the shares) and does not cover such bodies as limited liability partnerships and "quasi-subsidiary undertakings". CIPFA and LASAAC are shortly expected to change the requirements on the treatment of local authority companies. The Statement of Recommended Practice is likely to require authorities to prepare group accounts for themselves and the companies in which they have a significant interest. When that happens, the intention would be to use the new power to amend 18(2)(b), replacing the reference to Part 5 with a reference to "any company for which the authority is required to prepare group accounts". It might also be necessary to extend this to apply to any company or other body for which the authority is required to prepare group accounts to take account of limited liability partnerships and trusts - but this would depend on how CIPFA/LASAAC define the accounting obligation.

5. Looking much further ahead, there are likely to be major developments in national and international accounting practice to improve transparency and reduce the scope for the kind of "creative" accounting highlighted in the Enron affair. These changes could affect the treatment of, for example, borrowing, leasing and private finance initiative ransactions. One main implication is that various transactions which are now off-balance sheet will have to be fully recognised in the balance sheet. In the first instance, all this will just affect commercial accounting but corresponding treatments will almost certainly need to be extended to local government. The necessary changes may go beyond what could be achieved through the more limited power in clause 21 to amend accounting practice and the new power may be crucial. In addition there are various very specific accounting provisions in legislation which may need to be amended as GAAP is applied to local authorities and GAAP develops. Examples are: the definitions of accounting provisions being written into the Local Government Finance Act 1992 by paragraph 50(3) of Schedule 6 to the Bill; various provisions on specific accounts for particular services or functions; and provisions of local Acts affecting particular authorities.

6. The power would mainly be used to amend enactments which relate to the accounts of a local authority. But the power might also be used in relation to other enactments relating to local authorities where that is appropriate in the light of GAAP. For example, the power might be used to amend the definitions of "company" in Part 5 of the 1989 Act, to ensure that the propriety controls which can be imposed on companies under section 70 of that Act apply to the same companies in relation to which an authority is required by GAAP to prepare group accounts. The provisions which have been made under section 70 include a requirement that local authority companies identify in relevant documents that they are such a company, limits on director pay and provision of financial information (see the Local Authorities (Companies) Order 1995, S.I. 1995/849). In respect of clauses 96 and 97 of the Bill (power to trade in function-related activities through a company), we might also want to alter the Part 5 definition of companies to enable authorities to exercise the trading power through the wider raft of entities to which GAAP applies.

7. The "appropriate person" is the Secretary of State, in relation to England, and the National Assembly for Wales, in relation to Wales (clause 123). "Local authority" means the bodies which are local authorities for the purposes of Part 1 of the Bill (clause 23), together with parish councils, community councils and charter trustees.

8. We consider that this power is necessary as it is not possible to say at present what changes will be needed to legislation affecting local authorities as a result of GAAP and the way it will be applied to authorities. The power to make changes by order provides a flexible and relatively quick way to ensure consistency. The power will only be exercisable if it is appropriate to make changes in the light of GAAP.

9. [New clause ] provides that no order can be made by the Secretary of State unless a draft of the order has been laid before, and approved by a resolution of, each House of Parliament. We consider that this provides the appropriate level of Parliamentary scrutiny.

Second Letter from Lord Rooker, Minister of State at the Office of the Deputy Prime Minister, to the Chairman

I am writing to inform the Select Committee on Delegated Powers and Regulatory Reform Committee that I have tabled an amendment to clause 76 of the Local Government Bill (plus a number of minor amendments consequential on it to Schedules 6 and 7 of the Bill) at Report Stage in the Lords, which has been scheduled to start on the 10 July. The clause would extend clause 76 to give Welsh local authorities the same powers regarding council tax discounts on second and empty homes as English ones.

The attached memorandum is supplementary to the one already provided on the rest of the Bill by the Office of the Deputy Prime Minster and explains why this amendment, which confers regulation making powers on the National Assembly for Wales, is needed.. The Committee did not as part of its earlier consideration criticise the extent of the powers delegated by clause 76 to the Secretary of State in relation to England.

Powers to reduce council tax discounts conferred by clause 76 on the Secretary of State and on English billing authorities are wider than those currently conferred by section 12 of the Local Government Finance Act 1992 on the National Assembly for Wales and on Welsh billing authorities. The National Assembly for Wales is keen for billing authorities in Wales to be given the greater discretion conferred by clause 76, and the amendments I have tabled achieve this. As explained in the memorandum, powers conferred on the Assembly to make regulations would be subject to that Assembly's own procedures in accordance with its standing orders.

I have tabled these amendments, as in my view it would not be right to deny Welsh local authorities these freedoms that will be available to English local authorities when there are no reasons to do so in terms of the devolution settlement.

4 July 2003

Second Supplementary Memorandum by the Office of the Deputy Prime Minister

Amendment to clause 76: Discounts: special provision in Wales

1. Section 11 of the Local Government Finance Act 1992 ("LGFA 1992") provides for nationally set council tax discounts. Currently under section 11(1) there is a discount of 25% where there is only one resident, or all but one of the residents fall to be disregarded for council tax purposes, and under section 11(2) there is a discount of 50% where there is no resident or all residents fall to be disregarded.

2. Billing authorities in Wales currently have power under section 12 of the LGFA 1992 to reduce (from 50% to 25%) or remove the discounts which would otherwise apply under section 11 for all dwellings in their areas which fall within classes prescribed in regulations. The relevant regulations are the Council Tax (Prescribed Classes of Dwellings) Regulations 1998 (S.I. 1998/105).

3. Section 12 of the LGFA 1992 does not apply to English billing authorities. Clause 76 inserts a new section 11A into the LGFA 1992 which enables the Secretary of State to prescribe by regulations classes of dwellings for which an English billing authority may change the level of council tax discount. Under subsection (3), the Secretary of State may prescribe a class of dwellings where the billing authority may reduce to no less than 10%, but not remove the discount. Under subsection (4), the Secretary of State may prescribe a class of dwellings where the billing authority may reduce or remove completely the discount.

4. The powers conferred by clause 76 on the Secretary of State and on English billing authorities are wider than those currently conferred by section 12 on the National Assembly for Wales (by virtue of Schedule 1 to the National Assembly for Wales (Transfer of Functions) Order 1999 (S.I. 1999/672)) and on Welsh billing authorities. The clause 76 powers allow regulations to prescribe classes of dwellings for which the billing authority may reduce the discount to percentages other than 25%, and allow a determination that the discount be reduced or removed to apply to dwellings in only part of a billing authority's area, not just the whole area.

5. The National Assembly for Wales is keen for billing authorities in Wales to be given the greater discretion conferred by clause 76. Amendments will be tabled to achieve this. Subsection (2) which is to be inserted into clause 76 substitutes a new section 12 for the current section 12 of the Local Government Finance Act 1992. The new section 12 will give the National Assembly for Wales and Welsh billing authorities the same discretions as the new section 11A confers on the Secretary of State and on English billing authorities.

6. Under subsection (3) of the new section 12, the National Assembly for Wales may prescribe a class of dwellings where the billing authority may reduce (to no less than 10%) but not remove the discount. Under subsection (4) of the new section 12, the National Assembly for Wales will be able to prescribe a class of dwellings where the billing authority may reduce or remove completely the discount.

7. Until the National Assembly for Wales makes new regulations under the new section 12, subsection (3) to be inserted into clause 76 provides for the Council Tax (Prescribed Classes of Dwellings) Regulations 1998 (S.I. 1998/105) to have effect as if they prescribed a class of dwellings for thev purposes of the new section 12(4) (which will allow billing authorities to reduce or remove the 50% discount). Subsections (4) and (5) to be inserted into the clause 76 will preserve authorities' extant determinations as to the reduction or removal of the 50% discount for all the dwellings in their areas.

8. The powers to make regulations conferred by the new section 12 on the National Assembly for Wales would be subject to that Assembly's own procedures in accordance with its standing orders.

9. In its sixteenth report of the 2002-03 session, ordered to be printed on 2 April 2003, the Select Committee on Delegated Powers and Regulatory Reform did not criticise the extent of the powers delegated by clause 76 to the Secretary of State in relation to England.

4 July 2003


 
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