Supplementary memorandum by Office of
the Deputy Prime Minister (LGB 45)
At the TLRC Urban Affairs Sub-Committee hearing
on the afternoon of Thursday 11 July regarding the draft Local
Government Bill, I agreed to let the Committee have a supplementary
note on the following points.
The number of plans a local authority has a statutory
responsibility to produce
Research carried out by the Department has identified
66 plans which councils are required to produce at Government's
behest. The review of these plans, announced on 11 July 2002,
aims to halve this number. I attach a copy of the press notice,
which accompanied the announcement for information.
The expected savings that would be made by Merging
NNDR and Revenue Support Grant (clauses 29-44)
It is difficult to put a monetary figure on
the savings which would be made from merging Revenue Support Grant
and national Non-Domestic Rates into a single funding stream.
There would be some small savings in staff time and resources
for the Department itself. These would arise not so much from
making one set of payments instead of two but from the reduction
in the time needed to explain how two funding streams interact
and to correct the misunderstandings, which are evident in the
responses we receive when we consult on our proposals for the
annual Local Government Finance Report.
However, we expect the majority of the benefits
to accrue to local authorities, councillors and other stakeholders.
These benefits would be in the form of time saved as a consequence
of the greater transparency and intelligibility of the grant distribution
system having only one funding stream.
Will Wolverhampton City Council really lose out
to the tune of £10 million with respect to the requirement
that housing revenue account surpluses can be paid to the Government
for re-distribution to other services, as they suggested in their
evidence to the committee (clause 96).
In their evidence I believe Wolverhampton City
Council suggested that some £10 million a year was being
taken from them by the subsidy system. This is not the case: Wolverhampton
are receiving a subsidy of £5 million towards the cost of
operating their council housing over and above the subsidy they
receive for rent rebates.
The detailed position is as follows. Wolverhampton
will this year receive a Housing Revenue Account (HRA) subsidy
of £41.2 million. This is made up of two components:
a Rent Rebate Subsidy of £36
million, which meets most of the costs of rebates to tenants who
are eligible for Housing Benefit; and
a Housing Element Subsidy of £5.2
million. This is the "bricks and mortar" subsidy towards
the running costs of the authority's council housing costs.
Wolverhampton's complaint is that subsidy calculations
include £15.5 million as a Major Repairs Allowance. (The
Major Repairs Allowance was introduced in April 2001 to enable
councils to fund capital renewals work. The intention was to ensure
that councils had adequate resources to maintain their housing
and were not in a position in which they were forced to allow
it to deteriorate due to lack of funds. The Major Repairs Allowance
can only be used for capital purposes.)
The subsidy calculation is, in effect, saying
that, before account is taken of the Major Repairs Allowance,
Wolverhampton should have a surplus of income over operating costs
of £10.3 million, and that that £10.3 million, plus
a further £5.2 million provided in subsidy, should be set
aside for capital renewals work on Wolverhampton's stock.
Wolverhampton appear to be saying that the subsidy
system should not expect them to set this money aside to renew
their stock. I find this very difficult to understand. Any prudent
organisation that expects to continue in business needs to set
money aside to renew its assets just as much as its needs to cover
its operating costs and pay its capital charges.
Wolverhampton may feel that the subsidy system
should allow them to use more of their revenues to meet operating
costs and that more of the cost of renewals should be met by subsidy.
I imagine many housing authorities would also like to have additional
resources. However, the subsidy uses objective measures of need
to share out the available subsidy as fairly as possible and the
result is as I have explained: Wolverhampton is a net recipient
of subsidy to the tune of £5.2 million.
The balance of benefit from overhanging debt write-off
and breakage costs as against subsidy, in particular the benefit
to a local authority that undertakes a Large Scale Voluntary Transfer
of the write-off of the "debt overhang" (and if proposed,
the write-off of debt premia); and the subsidy that would be paid
to the same authority towards debt charges (clauses 48-49).
It has been suggested that the repayment of
overhanging debt following a large scale voluntary transfer to
a housing association represented a financial incentive to transfer.
This is not the case. Before the transfer the Housing Revenue
Account subsidy system takes into account the full cost of servicing
the authority's housing attributable debt: there is no net burden
on the authority. The repayment of the outstanding debt following
transfer ensures that this continues to be the case.
There is in theory the option of the authority
retaining the outstanding debt in its Housing Revenue Account
following transfer but the Government would continue to subsidise
this and again there would be no net cost to the authority.
Redistributive consequences of taking rent rebate
subsidy out of the Housing Revenue Account (clause 97).
This provision will not have a significant effect
on the distribution of resources between most authorities. The
purpose of Clause 97 is to produce greater transparency. At present
where we calculate that an authority should have a housing element
surplus that surplus is deducted from its entitlement to rent
rebate subsidy and the net sum is paid to the authority. This
has led the Daylight Robbery Campaign to conclude (wrongly) that
councils rents are being used to pay rent rebates. In fact what
is happening is that housing element surpluses from 210 authorities
totalling some £667 million are being used to meet part of
the cost of housing element subsidies to 57 authorities that have
combined housing element deficits of around £899 million,
with the Treasury making up the difference of £232 million.
Under the new arrangements this position will be transparent as
rent rebate subsidies will be dealt with separately.
The spending power of most authorities would not
be affected. There are, however, currently 20 authorities whose
housing element surplus is greater than their rent rebates. Rather
than requiring that the net amount is paid to the Treasury, these
authorities are currently required to transfer that amount to
General Fund. Nationally this amounts to a total transfer of around
£13.5 million. Only this small number of authorities would
be significantly affected by Clause 97, as these transfers to
the General Fund would cease and instead they would be required
to pay their housing element surpluses in full into the national
If we did not operate this redistributive mechanism
then either public expenditure would have to increase by £667
million, or rents would have to go up by substantial amounts (in
some cases doubling) in some of the most deprived areas of the
country to maintain the current level of service.
Due to lack of time on the day, the Committee
submitted a number of additional questions, the responses to which
are given below.
How long has the Director of Local Government
Finance been in post and what experience has he in the field of
Local Government Finance?
The director of Local Government Finance has
been in post since April 2002. He has wide experience of the financing
and delivery of public services, though not in the local government
How long has the Director of Local Government
Grant Distribution been in post and what experience has he in
the field of Local Government Grant Distribution?
The manager of the Grant Distribution Division
has seven years' experience in local government finance, having
worked on capital finance, co-ordinated successive Revenue Support
Grant settlements since 1996-97 and led the review of formula
grant distribution since June 2001.
What is the turnover of Finance Division staff
Such information is not readily available and
it would take a considerable amount of time to prepare. I am therefore
providing information on the average length of time in post for
certain members of staff. (Any such figure is of course a poor
indicator of the contribution and expertise which individuals
bring to bear. Some staff have previous experience in Local Government
Finance, others have brought generic skills acquired in other
policy areas. I believe that LGF staff are doing an excellent
job, and the real test is the quality of their work in annual
settlements, the recent Green and White Papers etc about which
there can be no dispute.)
The average length of time in post so far of
the middle/senior management staff (team leaders and above) in
LGF directorate is 33 months. Of course this figure does not reflect
the considerable prior experience many members of staff have had
in the field of local government finance. A significant number
have worked in LGF directorate before and two individuals are
on secondment from a local authority and the Audit Commission.
What has been the turnover of staff responsible
for the business rates since 1997?
The five staff currently in the business rates
team have on average been in post for nearly five years. The team
leader post has been vacant since April 2002; a new team leader
will take over in September.
Clause 59 states that the two ballots for a business
improvement district should be subject to a "prescribed"
percentage. What will the percentage be (clause 59)?
Establishing a Business Improvement District
(BID) will require one ballot of the ratepayers, not two. However,
as stated in the White Paper Strong Local LeadershipQuality
Public Services for a ballot to succeed there will need to
be "a simple majority of those voting plus a majority by
rateable value of those voting". This is what will be prescribed.
It will ensure that a BID cannot be forced through by small firms
against the wishes of large ones, or vice versa.
The Audit Commission does not seem to want the
responsibility for making reports available to the public. Why
do you propose that they should do so (clause 108)?
This suggestion is in contrast to the communications
we have received from the Audit Commission, who have written to
the Department stating that they thought that auditors "should
be given the statutory power to publish Public Interest Reports
rather than issuing them to the audited body". It is important
that where auditors identify failings in local authorities that
action is taken promptly to rectify the position. We consider
that there is merit in auditors taking full responsibility for
the publication of their own reports rather than relying on authorities
to publish. It will enhance the independence of the report if
it is seen throughout to be the responsibility of the auditor.
For this reason we have sought to align more closely the provisions
covering all public interest reports, both reports at the end
of an audit and "immediate" reports. We welcomed the
proposal from the Audit Commission to make this change.
Is it time to legislate separately for Welsh and
English local government? Should Welsh local government matters
now be left to the Welsh assembly?
We have no plans to change existing legislative
arrangements, which we believe are working well and meeting the
needs of people in both England and Wales.
Rt Hon Nick Raynsford MP
NEW PRINCIPLES TO HALVE PLANS BURDEN ON COUNCILS
Councils are set to benefit from more streamlined
and less time consuming plan requirements. The benefits will be
delivered by new principles, published today by Local Government
Minister Nick Raynsford, aimed to at least halve the number of
plans central government requires councils to develop.
The Government will use the principles to evaluate
current plan requirements and aims to announce the results of
the evaluation towards the end of October 2002. The evaluation
will highlight the plans to be removed and will significantly
reduce the burden of those that are retained.
The principles are part of a series of commitments
made in the White Paper, Strong Local LeadershipQuality
Public Services, to help bring councils greater freedoms to
deliver. Commitments already completed include the publication
of the Making a Difference report into red tape and bureaucracy
in local government.
Additionally, the Department of Health has already
announced a significant reduction in Social Service plan requirements.
Nick Raynsford commented:
"Planning has an important role to play
in the delivery of high quality services. Councils plan with their
partners, for the delivery of services in a variety of ways and
for a number of purposes. In some cases, central government has
a legitimate need to place requirements on councils to provide
assurance that they have robust mechanisms in place to deliver
national policy priorities and standards.
However, we also recognise the need to exercise
restraint I imposing such requirements. The cumulative burden
of plan requirements has continued to increase with insufficient
regard to whether the services concerned are national priorities,
the performance of councils and whether other approaches can deliver
the same outcome.
The principles published today are one of a number
of steps to address these issues. They set out the way in which
we envisage achieving the aims of reducing the plan burden and
improving the effectiveness of those plan requirements that remain
for both central and local government."
The principles aim to reduce the burden of plan
requirements placed on councils in terms of the number of plans
required, the prescription of their content and the resources
needed for their production. The principles also emphasise the
need for consistency between plans, avoiding the duplication of
a number of plan requirements in a single plan and avoidance of
an annual plan cycle.
Key points include:
A presumption against the introduction
of new plan requirements.
Regular review and evaluation of
A clearer link between plan requirements
and national policy priorities.
Commitment to seek more efficient
and effective alternatives to plans, where possible.
Consideration on the need for some
plan requirements in the context of council performance.
Leave scope for local discretion
on plan requirements, where possible.
Plan requirements should seek to
minimise demand on council resources.
The full set of principles is included in Annex