48. The Department's estimate of the financial
impact of the proposal - which varies from that given in the consultation
document, as a result of concerns expressed by consultees about
the basis on which the original estimate was made - is set out
in paragraphs 48-53 and Annex D (Draft Regulatory Impact Assessment)
of the explanatory memorandum.
As is made clear in the explanatory memorandum, the proposals
have been developed on the basis of 'cost neutrality', meaning
that none of the parties involved should be financially disadvantaged
as a result of the changes proposed to be made.
49. We were initially unhappy about the clarity of
these estimates. The combination of the rising capital baseline,
the effects of VAT, and the fact that past spending is not necessarily
an accurate guide to what will be needed in the future, as well
as the confusing nature of the current arrangements for determining
liability, served to create a complex situation which was not
well explained in the explanatory memorandum. Given the importance
(as confirmed by many of the responses to consultation) of ensuring
that 'cost neutrality' was achieved by these proposals, and the
associated funding mechanisms, we asked the Department for further
information on a number of points relating to the financial impact
of the proposal.
50. We are grateful to the Department for its reply,
which, along with the illustrations it has provided of how the
proposals would have affected projects in schools in the Burnley
area since 1996, clarified the picture considerably.
We accept that the figures given in the Regulatory Impact Assessment
represent the best estimate which can be made of the actual effects
on all of the parties involved. On that basis, we are satisfied
that the proposals achieve 'cost neutrality', and that none of
the parties involved should be financially disadvantaged as a
result of the changes in the assignment of liability. This will
depend to a large extent, however, on the Department ensuring
that the necessary funding is made available. In particular, we
are anxious that the necessary funding for local authorities to
meet their new revenue liabilities should feed through into the
new arrangements for determining SSA which will have effect from
2003-04, and we note the Department's assurance that this will
be the case.
51. We note, however, that, for various reasons,
the effect on individual schools - and LEAs - will vary. In this
context, we draw particular attention to the provision allowing
the Secretary of State to pay grant to VA governing bodies at
up to 100% in 'exceptional circumstances', which should prevent
any individual school from being substantially financially disadvantaged
by the changes. Precise
details of the effects of the changes will, the explanatory memorandum
says, be illustrated in detailed guidance to be provided to VA
schools, Dioceses and LEAs.
The Department's supplementary memorandum suggests that this guidance
will be ready in draft form by mid-February:
we hope that it will be possible to see this draft before concluding
our consideration of any draft Order consequent on this proposal.
52. There is one further point to which we believe
it is worth drawing attention (because it is not made clear in
the explanatory memorandum). Because the VA capital baseline is
fixed, the Department will spend the same in cash terms as it
would have done had the grant rate remained at 85%. However, part
of the allocations would be in 100% terms to fund backlog/exceptional
circumstance spending, and most would be at the revised rate of
grant support of 90%. So a smaller gross capital programme would
be supported in absolute terms - meaning less money spent on capital
work at VA schools as a result of these proposals.
On the other hand, it should be noted that if no change were made,
it may be the case that all the funds available would not be used
anyway, because VA schools would be unable to raise sufficient
money to meet the full 15% contribution (indeed, more than one
respondent to the consultation suggested that, in some cases,
this was already happening). It should also be pointed out that
the 10% contribution is a minimum, not an absolute: VA governing
bodies are free to spend more on their premises if they can raise
53. We note that the Department intends to carry
out a postimplementation review of the operation of the
proposals. This review
would look at the position around the middle of the first year
(2002-03), and then do so again after the end of that year. We
look forward to receiving a report of that review (as the Department
has indicated will be the case).
When we do so, we will examine carefully the financial effects
of the changes proposed to be made, and any funding adjustments
the Department makes to take account of any differences between
its current estimates of the financial impact of the proposals
and the impact which they actually have.
54. As already noted above, it is proposed that
those provisions of the Order which would define capital expenditure
(including that which would set a de minimis level beneath
which no expenditure could be considered as capital) be designated
subordinate provisions; and that any ensuing subordinate provisions
orders be subject to the negative resolution procedure.
55. The Department explained that the reason for
the designation of these provisions as subordinate was to enable
the definition of capital expenditure to be changed in the future
if, for example, there were changes to the CIPFA guidance (on
which the proposed definition is based); and, similarly, to enable
changes to be made to the de minimis level in the light
of experience and any changing circumstances.
Enabling amendment of the definition of 'capital expenditure'
seems sensible; and, as we note above, it is important that the
de minimis level can be changed, in order to ensure protection
against the possibility that the level set turns out to be inappropriate
or unworkable (although we are satisfied on the basis of the information
available that it has been set appropriately in the first instance).
We are therefore satisfied that such a designation should be
made; and that the negative resolution procedure is appropriate
for any ensuing subordinate provisions orders. In view of
the comments made by several of the respondents to consultation,
however, we would expect the Department to have consulted appropriately
before implementing any such changes; and this will be a matter
we will consider as and when any such subordinate provisions order
comes before us.
56. The proposal laid before Parliament appeared
to us to have been poorly drafted in a number of respects and
had all the appearances of work in progress. A note illustrating
some relevant points is included with the Appendices to this Report.
The Department must ensure, before a draft Order is laid before
the House for second-stage scrutiny, that the Order is properly
and appropriately drafted. We are pleased to learn that considerable
progress has already been made in this regard.
57. It appears to us that the reason for the poor
standard of drafting in this case may have been the result of
the proposal having to be laid before Parliament in something
of a hurry, in order to ensure that it could pass through the
necessary Parliamentary stages in time for implementation on the
planned date of 1 April 2002. We appreciate the need for speed
in this case, given the objective of implementing these changes
by that date, and the desirability of ensuring that all parties
involved were given sufficient time to prepare for it. However,
we remind Departments that the requirement under the Regulatory
Reform Act is to lay before Parliament "proposals in the
form of a draft of the Order, together with [an explanatory memorandum]."
The draft Order is not therefore simply an indicative adjunct
to the policy proposals contained in the explanatory memorandum,
but should rather represent a full and complete expression of
how those proposals are to be given legislative effect. We trust
that future proposals will come before Parliament in such a state
as to ensure that this is the case.
58. The proposal extends only to England. The
Department note that the National Assembly for Wales has undertaken
an informal consultation to establish whether there is a consensus
in Wales for changes, but that that consultation produced no such
Report under Standing Order No. 141
59. We recommend that the proposal be amended
by the extension of the proposed amendments to Schedule 22 of
the 1998 Act to include all 'excepted buildings', and by the improvement
of the drafting of the Order so that it gives proper legislative
expression to the policy proposals contained in the explanatory
memorandum, before a draft Order is laid before the House.
47 See also attachment to Appendix 1. Back
Appendix 1, para 9. Back
Appendix 2, pages 42-50. Back
Appendix 2, page 43, para 5. Back
See also para 31 above. Back
Explanatory memorandum, para 97. Back
Appendix 2, page 46, para 20. Back
Appendix 2, page 45, para 15 . Back
Explanatory memorandum, para 105. Back
ibid, para 69. Back
Explanatory memorandum, paras 23, 70. Back
Appendix 6. Back
Regulatory Reform Act 2001, s6(1). Back