Memorandum by Society of County Treasurers
1. The Society of County Treasurers (the
Society) has in membership all 35 Chief Financial Officers of
the English County Councils, and together these authorities represent
47 per cent of the population of England and provide services
across 84 per cent of its land area.
2. The Society welcomes this opportunity
to submit its views to the Committee and would be happy to follow
this up with oral evidence if the Committee so desires. The submission
itself addresses each of the key elements of the draft bill upon
which the Society would like to put forward it views for consideration.
3. The Society welcomes the proposals, which
will give local authorities the financial freedom to borrow for
capital purposes where they can demonstrate affordability. The
Society has already provided its views to the Chartered Institute
of Public Finance and Accountancy (CIPFA) on the draft Prudential
Code, which provides further details on how borrowing limits will
4. Proposals for the Secretary of State
to hold reserve powers to set borrowing limits for all or individual
authorities, seem to be at odds with the principle of a prudential
system for capital finance and will not only act to restrict the
proposed new freedom but will also bring an uncertainty to the
process when local authorities are setting borrowing limits.
5. The Society is encouraged by the clarification
of local authority powers to invest for prudent financial management
purposes and would like to encourage the Government to provide
additional flexibility in respect of the financial instruments
local authorities may use for investment purposes.
6. However, we are concerned that there
is a risk of undue prescription and centralisation from the Secretary
of State taking powers to regulate the use of capital receipts
and to make new regulations.
7. We also think it important that Government
continues to provide its current share of revenue support to capital
investment, providing prudential guidelines are adhered to, in
line with capital strategy and asset management plans.
8. The proposals for the Secretary of State
to specify that local authorities maintain their reserves at a
minimum level would seem to be particularly problematic and unnecessary.
Local authorities will have regard to a range of considerations
when setting appropriate levels of reserves and it also seems
unlikely that any legislation could account for all local authority
types, sizes and circumstances that vary from year to year.
9. The Society questions the need for the
proposals for authorities to keep their finances under review,
and for the Chief Finance Officer to report on the adequacy of
reserves and robustness of budget estimates. They will be doing
this anyway in accordance with professional guidance, CIPFA codes
and best practice, and there appears to be a distinct lack of
evidence to support the need for such legislation.
10. CIPFA has recently issued a consultation
document entitled "A Statement On The Role Of The Finance
Director In The Modern Local Authority". Such professional
guidance is welcomed by the Society and held up as an example
of the success of the current system.
11. The proposal to effectively combine
the existing Revenue Support Grant (RSG) and National Non Domestic
Rates (NNDR) into a single Formula Grant is strongly opposed by
the Society. We maintain that NNDR is fundamentally a local tax
and a combination of the RSG and NNDR elements into a single Formula
Grant will remove what little transparency remains in the system.
Separate identification of the NNDR is important particularly
in the context of local authorities discussions with the business
community and the localisation of business rates is an important
element in the promised consultation on the balance of funding
between central and local government.
12. The introduction of Business Improvement
Districts is potentially a useful resource for development of
local schemes and priorities, although the appetite for an additional
levy amongst local businesses has yet to be established.
13. The Society would also highlight the
potential contradiction between the introduction of Business Improvements
Districts on the one hand, and removing the transparency on NNDR
with the introduction of Formula Grant, on the other.
14. The Society welcomes proposals for rate
relief for small businesses and is also encouraged by changes
that will allow the Government to make in year contributions towards
the cost of hardship relief.
15. The Society generally welcomes the proposed
changes to Council Tax including the revaluation of property values
every 10 years. However, this will undoubtedly lead to some significant
regional variations. It is therefore important that the proposed
transitional system will allow for changes to be implemented over
a number of years.
16. Steps to remove the last remnants of
the Council Tax Benefit Subsidy Limitation Scheme are welcome
together with the introduction of a proposal to allow the Secretary
of State to vary the number and ratio of council tax bands. We
would point out that the ability to pay for those on low and fixed
incomes, particularly just above the council tax benefit thresholds
is becoming problematic, and the review of the number of bands
and the ratio between them is crucial to maintaining the stability
and acceptance of Council Tax.
17. The draft bill indicates that proposals
regarding the council tax discounts for second homes and long-term
empty properties will be incorporated following the outcome of
a separate consultation exercise. The Society is generally supportive
of giving local authorities the discretion to end such discounts,
provided that the billing authorities in two tier areas are consulting
with the County Councils as part of the decision making process.
18. Proposals to allow local authorities
to charge for discretionary services and additional powers to
trade are welcomed by the Society although we still have yet to
identify services to which this might be applied and the potential
impact such charges may have. We would also appose these additional
freedoms being linked to performance of individual authorities.
19. The Society welcomes the proposals for
additional freedoms and flexibilities, although it is evident
that there has been a lack of progress in identifying and delivering
20. The Society is opposed to the allocation
of local authorities into just four performance categories, particularly
if this leads to differential treatment depending upon the classification
21. The Society is extremely disappointed
that there is no provision within this draft bill for changes
to the local taxation system or base, particularly by way of returning
NNDR to local authority control.
22. The table below illustrates that levels
of council tax increases continue to run well in excess of inflation
and the Society believes this position is unsustainable. Central
Government funding accounts for far too big a proportion of local
authority financing and as such the impact of shortfalls in central
government grant or increases in service costs fall disproportionately
on the local council taxpayer.
Illustrative Council Tax Increases
|ANNUAL INCREASE |
|1999/2000||6.8 per cent
||8.3 per cent||2.6 per cent
|2000/2001||6.1 per cent
||5.2 per cent||2.3 per cent
|2001/2002||6.4 per cent
||6.3 per cent||1.0 per cent
|2002/2003||8.2 per cent
||9.3 per cent||2.5 per cent Est
23. The Society therefore urges Government to return
NNDR to local authority control to restore the balance of funding.
Society of County Treasurers