Select Committee on Transport, Local Government and the Regions Fifteenth Report


81. The Government promised to redress the imbalance between central and local government. This Bill fails to achieve that. It makes some small steps in the right direction but at the same time increases the power of the Secretary of State. Central Government seems to be terrified of trusting local authorities and allowing them their independence.

82. We welcome the new prudential regime for local authority capital finance. We are concerned that the detailed Clauses in the Bill undermine that prudential regime with Clause 4 giving the Secretary of State power to restrict local authority borrowing as he sees fit and Clause 10 allowing the pooling of capital receipts. We are also concerned that the Government's control of local authority revenue funding effectively restricts borrowing.

83. The draft Bill is far too reliant on regulations. The Government should set out its intent on the face of the Bill, not through secondary legislation. When the Bill comes forward for consideration, all the secondary legislation should be available in draft.

84. We do not object to the Government bringing forward a revised version of the Bill, which gives greater emphasis to giving greater freedoms to local authorities. But there is a need not only for a Bill which makes minor modifications but which would constitute a major re-appraisal of how the aim of bringing about local government and local democracy will be achieved. If we are to have effective local government, the centre must let go-not just the Office of the Deputy Prime Minister but Government as a whole.

List of conclusions

    (b)  We recommend that the volume of regulation should be reduced. Instead principles should be clearly articulated on the face of the Bill and be implemented through voluntary guidance and local discretion. Where regulations are necessary, draft regulations should be available for consideration alongside the Bill at the Committee Stage (paragraph 6).

    (c)  We welcome the introduction of the prudential regime for capital finance and hope that the resources needed to implement it will swiftly follow (paragraph 7).

    (d)  We have asked the Local Government Association to report the outcome of its discussion with the Office of the Deputy Prime Minister on Clause 2 to the Committee. We will monitor developments (paragraph 8).

    (e)  We recommend that Clause 4 be redrafted so that the circumstances in which the Secretary of State can control the aggregate level of local authority borrowing are limited to occasions where this is in the interest of the national economy and subject to consultation with representatives of local government and affirmative action by both Houses of Parliament. We also recommend that proposals for the Secretary of State to limit the borrowing of individual authorities be removed (paragraph 13).

    (f)  We recommend that Clause 4 be amended along the following lines:

4 Imposition of borrowing limits

(1) Where the Secretary of State considers that it is necessary to do so in the interests of the national economy, he may by regulations set a limit on the aggregate level of borrowing of money by local authorities.

(2) No regulations may be made under this section unless -

(a) the Secretary of State has consulted such representatives of local government as appear to him to be appropriate,

(b) he has laid before each House of Parliament a report explaining the reasons why he considers it necessary that the regulations be made, and

(c) the report has been approved by resolution of each House of Parliament.

(3) Section 116(1) and (2) does not apply to regulations made under this section.

Clauses 2 and 24 would need to be appropriately amended (paragraph 14).

    (g)  We recommend that Clause 10 be removed from the Bill (paragraph 15).

    (h)  Recognising that the Government may insist on going ahead with Clause 10, we were pleased to hear the Minister's commitment that the final version of the Bill will refer to housing capital receipts only, with respect to Clause 10 (paragraph 16).

    (i)  We also welcome the Minister's commitment that Clause 10 will not be used retrospectively (paragraph 16).

    (j)  The Minister has proposed that the Government retain Clause 10, but amend it so that it relates solely to housing capital receipts. If this happens, the approach to pooling housing receipts should differentiate between right to buy and stock transfer receipts. The former should be retained locally for re-investment in housing (either new build or renewal, depending on local market conditions) (paragraph 17).

    (k)  The draft regulations for Clause 10, which relates to capital receipts, must be available when the Bill reaches the Committee Stage. We would be disturbed if the Government introduced a mechanism which took resources away from areas of housing need (paragraph 18).

    (l)  We recommend that the measure in Clause 10(1)(b) that allows the Secretary of State to make provisions about the time within which decisions about the use of capital receipts be made be deleted (paragraph 19).

    (m)  We support the recommendation of CIPFA that treatment of depreciation should move towards UK Generally Accepted Accounting Practice, in line with the resource accounting approach and that such a move should be resourced. It seems logical that central and local government finance should be run on the same basis and under proper accounting rules (paragraph 20).

    (n)  We recommend that Clause 25 be removed from the Bill (paragraph 23).

    (o)  We recommend that Clauses 26 and 27 be removed (paragraph 25).

    (p)  We recommend that revenue support grant and the redistributed national-non domestic rates should not be merged (paragraph 28).

    (q)  We recommend that the principles by which the Government wishes to operate the distribution system be specified on the face of the Bill (paragraph 29).

    (r)  The proposals contained in Clauses 48 and 49 on the re-payment of 'overhanging' debt by central Government at the point of stock transfer result in an uneven choice for tenants between remaining with the local authority and choosing the stock transfer route (paragraph 32).

    (s)  Generally, our evidence is positive about the "enabling" way in which Part 4 of the Bill has been drafted and its reliance on local discretion and guidance prepared jointly by central and local government the business community (paragraph 33).

    (t)  We recommend close monitoring of the additionality of Business Improvement District-funded activities (paragraph 34).

    (u)  We recommend that the Government works with the British Property Federation and other business organisations to find the best way of involving property owners as contributors to Business Improvement Districts, if necessary amending primary legislation and certainly covering this point in regulations and guidance (paragraph 35).

    (v)  We recommend that a threshold of two thirds of the number of businesses should be adopted to safeguard the interests of small businesses in a Business Improvement District (paragraph 36).

    (w)  The geographical area where Business Improvement District levies are payable should accurately reflect the geographical area where benefits will be accrued (paragraph 36).

    (x)  We recommend that Business Improvement District partnerships give consideration to reductions and exemptions from the levy, at the start of the process, so that the composition of those voting accurately reflects those who will be liable for the levy (paragraph 37).

    (y)  We recommend that the Government ensures that the Bill is drafted so that local authorities can choose to adapt such districts, if appropriate to meet local circumstances (paragraph 38).

    (z)  The Government should monitor the introduction of small business rate relief very closely to ensure that the benefit goes to the businesses and not to their landlords (paragraph 39).

    (aa)  We have received evidence that the rateable values proposed for the small business rate relief scheme are too low for the scheme to be meaningful and recommend that the Government revise the thresholds in the light of our evidence (paragraph 40).

    (bb)  We recommend the Government abandon its proposals in Clause 71 for a statutory requirement to make non-domestic rate transition schemes be self-financing (paragraph 41).

    (cc)  The introduction of the new council tax valuation must not be delayed beyond 2007 (paragraph 42).

    (dd)  We welcome Clause 80 and look forward to its use to increase the number of council tax bands (paragraph 43).

    (ee)  The Government should adopt a transparent approach to housing finance, in particular decisions should not be based on an assessment of business plans in the Housing Revenue Account when such an approach has been rejected for local government finance more widely (paragraph 45).

    (ff)  The Committee is concerned that the proposals in Clause 97 of the Bill mean that the "nearly poor" are being asked to subsidise the rents for other "nearly poor" people. Accordingly, the Committee believes that the Government should reconsider their proposals to introduce negative Housing Revenue Account subsidy arrangements (paragraph 47).

    (gg)  We recommend that the framework for trading should make it impossible for local authorities to cross-subsidise the costs of providing the traded service from other areas of council activity (paragraph 48).

    (hh)  We are disappointed that the Act has not been used as an opportunity to reduce the amount of inspection that authorities receive. This would seem to us to be a pre-condition to the introduction of any new regime of categorisation. The ongoing costs and opportunity costs of the current level of inspection mean that money continues to be taken away from service provision (paragraph 51).

    (ii)  Local authorities are clearly not yet happy with the methodology for Comprehensive Performance Assessment. A high quality, transparent, trusted mechanism is needed, particularly at the margin of each category. Concerns about the methodology are compounded by the fact that it is being developed whilst inspections are being undertaken. It is not yet clear how assessments can be made comprehensively across the council and there is a risk that good officers providing decent services will be demotivated by poor performance ratings for their authority as a whole (paragraph 58).

    (jj)  We recommend the Minister reads the transcript of our evidence session with the Audit Commission and hope that councils find it easier than we did to get clear, concise, straightforward advice from the Commission (paragraph 59).

    (kk)  If 60% of councils are classified as weak or failing in relation to all services except education, this raises concerns about the calibration of inspection results and the incorporation of these into the overall performance assessments (paragraph 60).

    (ll)  The Bill must include a mechanism for external appeals against categorisation by the Audit Commission (paragraph 61).

    (mm)  We believe that Clause 113 is unnecessary and undemocratic (paragraph 62).

    (nn)  The Committee made a recommendation about the payment of council tax on empty properties in its Empty Homes report:

"Any discretionary powers given to local authorities to charge full council tax on empty homes must include the freedom to do so on a ward by ward basis to take account of differences in demand within a local authority area, failure to provide for such flexibility could prove very damaging in areas where demand is low."

This should be incorporated into the Bill (paragraph 64).

    (oo)  We recommend the Government provide the majority of support for local authorities' capital investment programmes through revenue support; and to make capital grants only in exceptional cases, for example, as pump-priming for new initiatives. Such a system should create a level playing field between local authority borrowing and PFI/PPP (paragraph 65).

    (pp)  We welcome the intention to give statutory force within local government to guidance on staff transfers, thereby ending uncertainty on the Transfer of Undertakings (Protection of Employment) regulations, which damages the interests of local authorities, employees and contractors. We recommend that the legislation is accompanied by practical support for local authorities to spread good practice (paragraph 66).

    (qq)  We were pleased to see the commitment in the White Paper to review the central / local balance of funding, including "a high-level working group involving Ministers and senior figures from local government, to look at all aspects of the questionsreviewing the evidence and looking at reform options" (paragraph 68).

    (rr)  We recommend that the Government set a date for an interim report to be produced by the high level working group looking at the central / local funding balance (paragraph 68).

    (ss)  Against this background, there is no logic to the Government's proposals to merge the revenue support grant and national non-domestic rate (paragraph 68).

    (tt)  The only tax local authorities currently havethe council taxis highly visible, but not very buoyant; the Government controls the level and distribution of about 75% of their income; and too much of that income from central Government is ring-fenced. Put simply, they have very little financial room for manoeuvre. What is needed us a new approach to local government finance that has regard to the structure and functions of local government in England, the appropriate relationship between central and local government and the balance between central and local funding of government services that would be consistent with all of these. The Committee recommends the Government undertake such a wide ranging review and come forward with proposals (paragraph 70).

    (uu)   We have received evidence that the draft Bill suggests a lack of trust in councils by central Government. This does not sit easily with the Governments commitment to support and empower councillors and their officers, in the recent White Paper. More emphasis on such issues is needed (paragraph 71).

    (vv)  We recommend that the Government addresses the issues of councillors' allowances and pensions in the final Bill (paragraph 72).

    (ww)  We recommend the Government uses the opportunity of this Bill to remove the bar to standing for elected office currently covering council staff undertaking non-sensitive functions (paragraph 73).

    (xx)  If changes to the controls of Houses in Multiple Occupation and licensing of private landlords have not been introduced by Private Members Bills, the final version of this Bill should include such measures. We recommend that the licensing of private landlords be a discretionary power to all local authorities, linked to housing benefit (paragraph 74).

    (yy)  We recommend that the Government introduces mandatory 80% rate relief to Community Amateur Sports Clubs in the Bill (paragraph 75).

    (zz)  We recommend that the Bill amend Section 123 of the Local Government Act 1972 in relation to disposal of capital assets, to take account of the well-being power introduced in the Local Government Act 2000 (paragraph 76).

    (aa)  We note that the Office of the Deputy Prime Minister will be making a statement on its response to the report of the Office of Public Service Reform on the Department for Transport, Local Government and the Regions and recommend that this is full and frank. This will demonstrate to local government that central Government also values the benefits of external inspection and exposure of the results. It will also demonstrate that the Office is serious about making the necessary improvements (paragraph 77).

    (bbb)  Our Inquiry identified three areas where improvements are needed. Firstly, the Office of the Deputy Prime Minister needs to take a firmer lead within Whitehall in changing central Government's relationship with local government. In particular, the Departments of Education and Skills and Health are not doing enough to bring about the White Paper's ambitions to establish a partnership for delivering local services and to free local government from unnecessary controls. Secondly, the Office of the Deputy Prime Minister needs to recognise that local government finance and non domestic rating are complex specialisms and therefore do more to retain civil servants with relevant expertise. Staff turnover, particularly at senior levels, is high. Typically staff who have built up expertise then move on to completely different areas of work. Policy formulation is weakened by a failure to learn from the past. Finally, the Office needs to improve its understanding of what actually drives performance improvement in local government and consequently of how it should make the best use of "carrots and sticks" and practical support for authorities (paragraph 78).

    (ccc)  We have referred to the comments on Welsh local government to our colleagues on the Welsh Affairs Committee. We recommend the Government ensures that adequate consultation takes place with the National Assembly for Wales (paragraph 80).

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