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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