Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence

Supplementary memorandum by Local Government Association (LGB 05(a))

  When Councillor Bruce-Lockhart and I gave evidence to the Sub Committee on 8 July on behalf of the LGA we said that we would provide suggestions for amendments to clause 2 of the Bill relating to the control of local authority borrowing.

  Clause 2 cannot be considered in isolation from the other clauses relating to local authority borrowing which are clauses 3 and 4, so our proposals relate to the borrowing clauses in their entirety. This letter also offers comments on clauses 10 and 25-28.

  Clause 2 prevents local authorities from borrowing in excess of limits they have themselves determined under clause 3 or in excess of limits imposed by the Secretary of State under clause 4. The Secretary of State may impose a national limit on all authorities or set limits for individual local authorities. The LGA believes that the key test of affordability should be authorities' own prudential borrowing limits, determined locally, which take into account local priorities and ability to pay. The decisions that authorities take will be in accordance with a Code produced by CIPFA. This will require them to act prudently when drawing up their investment plans and to frame their strategies with regard to certain prudential indicators relating to external debt, capital commitments and treasury management.

  Our preference would be for the Bill to omit the powers for the Secretary of State to impose a national limit on authorities, which would have the effect of overturning local decisions on an amount of borrowing. This could be brought about by the deletion of clause 4. If the Government is unwilling to make this change then the Bill should specify the circumstances in which the Secretary of State would exercise his powers. These could be couched in terms of protecting the country's economic interests or preventing levels of public expenditure becoming unaffordable nationally, these being the conditions for the use of the power identified in the White Paper and in the Explanatory Notes to the Bill. The Bill could also be more specific on how the power might be applied, for example by specifying a timetable and whether limits would be imposed in-year or for future years.

  On a supplementary point, clause 4 gives the Secretary of State a power to impose a borrowing limit on an individual authority. Irrespective of whether the power to set a national limit is retained we believe that this power is unnecessary given that the authority will have to comply with CIPFA's Prudential Code in determining its borrowing needs. This provision should be removed from the Bill.

  In addition to imposing controls on local authority borrowing clause 2 provides for the Secretary of State to make regulations governing loan agreements. We question whether it is necessary to carry over into the new system the detailed requirements that currently exist in this area. We are discussing with the ODPM whether these regulation-making powers are necessary and hope that the outcome of those discussions is that they are not. In the light of these ongoing discussions it would be premature to say now that we want the provisions removing from the Bill.

  Clause 10 of the Bill gives the Secretary of State the power to make regulations requiring authorities to pay to the Secretary of State part or all of their capital receipts. This power will be used to implement the Government's White paper proposals to pool housing capital receipts as a means of redistributing resources to high need authorities. The drafting of the Bill goes wider than is necessary to fulfil this commitment by applying to all receipts. Clause 10 should be amended to apply to housing capital receipts only.

  Our written evidence to the Sub Committee expressed the view that clause 25 to 28 regarding financial administration were unnecessary. We share with CIPFA the view that the current statutory requirements relating to budget setting are sufficient. We are not aware of any convincing evidence that the existing provisions are inadequate and we see no good reason to add another layer of statutory intervention in this area.

Neil Kinghan
Director of Economic and Environmental Policy

Councillor Sandy Bruce-Lockhart

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