Memorandum by Wolverhampton City Council
(LGB 02)
DRAFT LOCAL GOVERNMENT BILL
1. Local authorities such as Wolverhampton
City Council are crucial to the delivery of public services and
have a major role to play and contribution to make as leaders
of our committees. It is pleasing to note that Government also
recognises the crucial importance of local authorities and that
they are committed to support authorities in helping to raise
service standards and meeting the needs of local communities,
business and people.
2. There are a number of proposals which
merit welcome, in particular:
— not to proceed with the plan-based
funding system outlined in the September 2002 Green Paper;
— to abolish the Council Tax Benefit
Subsidy Limitation Scheme—which took effect at the end of
March 2002;
— to introduce a new capital finance
regime based on prudential rules;
— to continue the local PSA programme;
— to retain the existing Council Tax
billing arrangements;
— to introduce regular, statutory revaluations
of the Council Tax base;
— to introduce legislation to establish
Business Improvement Districts and;
— to give local authorities freedom
to trade, charge for services and use the income from penalties
for local environmental improvements.
3. Naturally, there are matters of concern
where little real progress appears to have been made to date,
namely:
— address the central issue about the
balance between central and local funding of local government
spending;
— reduce the level of ringfenced funding;
and
— develop new Standard Spending Assessment
(SSA) formulae.
4. Clearly, these concerns go right to the
heart of local government finance. Full and early consultation
with Local Government associations and local authorities will
be of critical importance. Wolverhampton, like all authorities,
eagerly awaits the outcomes of the Government's Spending Review
2002 and the consultation paper setting out the Government's proposals
for the 2003-04 Local Government Finance Settlement. Given the
scale and nature of the likely changes, it will not be possible
to implement in full all of the changes in a single year. Transitional
arrangements will need to be in place to phase-in the new arrangements
over several years, using floors and ceilings to safeguard Council
taxpapers and service users.
5. I set out below comment on particular
issues, together with a number of questions to which local authority
treasurers need answers. Whilst the position will hopefully become
clearer over coming months, the Committee may wish to press Government
Ministers on some of these matters during the course of its enquiry.
6. Specific Grants
6.1 There has been a very major increase
in the use of specific grants since the New Labour Government
took office—by almost 75 per cent. This has undoubtedly
helped to raise service standards in many areas. It does, however,
significantly reduce local discretion to vary spending priorities
to address local needs; often requires significant initial costs
to prepare/submit bids; other services may need to be reduced
to provide the match funding required to drawdown the new specific
grants on offer; and causes real difficulties when grants expire
because local communities expect those formerly grant funded services
to continue.
6.2 Given the scale of current use of specific
grants, proposals to reduce them by transferring resources to
general grant will have major implications for very many authorities,
but especially those in the Inner Cities such as Wolverhampton.
I am unclear what the Government is proposing for each of the
existing specific grants, how it will consult with local government
and service users currently relying upon those grants, the timetable
for completing the review and of the arrangements for phasing-in
any changes.
7. Education Funding
7.1 Government decisions in this area will
be the most critical. The key issues for local authorities will
be:
— the size of the Education "SSA"
block following the Government's Spending Review 2002;
— how this is then split between Schools
and other education Services;
— how the "SSA" provision
for the Schools and the LEA sub-blocks will be distributed between
local authorities;
— what will happen to schools delegation
targets
— will the "tracking model"
be practical, workable, transparent and easily understood by teachers
and parents?
— under what circumstances will the
Secretary of State intervene to determine the education budget
for individual local authorities.
8. "SSA" and General/Targeted Grants
8.1 Concerns exist as to whether any new
system will:
— be presented in a way that is readily
understandable to Council taxpayers etc.
— be sufficiently robust to avoid criticism
of unfairness or cronyism (ie how, for example, will the issue
of the Area Cost Adjustment be addressed?).
8.2 There must be full consultation on the
Government's proposals as early as possible, and this should be
several months in advance of the separate consultation on the
proposed Local Finance Settlement for 2003-04.
8.3 Individual local authorities also require
meaningful and accurate guidelines from Government on an annual
basis as to:
— how the balance between specific,
general and targeted grants is expected to change over a rolling
three year period;
— to what extent resources are expected
to shift from specific to targeted (or general) grants over that
three year period (or vice versa)
— to what extent will "SSA"
for each major service change over a rolling three year period.
8.4 As part of the move towards better medium
term service and financial planning, and the proposed introduction
of the new prudential framework, why cannot the Government provide
the above key medium term guideline information to each local
authority as part of the annual consultation on the Local Government
Finance Settlement for the year ahead?
9. Capital Finance
9.1 The proposed changes to the capital
finance are welcomed. Can the government however, give a firm
timetable for introducing this new legislation? Can, for example,
local authorities start to update their medium term service and
financial plans on the likely assumption that the new arrangements
will come into force on 1 April 2004? To engender greater transparency,
certainty, and understanding, will the Government provide capital
grants under the new system, so that authorities quite clearly
understand that any borrowing undertaken to boost capital spending
will need to be entirely financed locally? This would remove the
concerns that exist currently about the extent to which Government
is helping, or not, to meet the costs of financing past permissions
to borrow as part of each year's RSG settlement.
10. Housing Finance
10.1 The Authority has raised several times
with the Government its serious concerns about the extent to which
HRA "surpluses" are paid over to the Government. Even
when Rent Rebates are transferred from the HRA to the General
Fund the present arrangements seem set to continue. It remains
the strongly held view of Members across all parties in Wolverhampton
that tenants in HRA properties should not subsidise the cost of
statutory national rent rebate scheme by well over £1 billion
per annum in England. Tenants in other social housing do not subsidise
the cost of rent allowances. Now that the Government has introduced
Social Rent Reforms through a national rent formula so that rent
setting in the social housing sector is brought on to a common
system, this anomaly over the funding of statutory rent rebates
and allowances should cease. Will the Government give an assurance
that this will be the case when the Local Government Bill is enacted,
if not sooner?
11. Council Tax
11.1 The four proposals relating to Council
Tax are to be welcomed and are long overdue; the four proposals
being:
— the revaluation of the tax base;
— possible changes to the banding arrangements;
— transitional relief to protect Council
Tax payers from steep rises in bills resulting from revaluation;
— local discretion to reduce or end
the discount on Council Tax for second homes.
11.2 The most significant of the proposals
relates to the regular revaluation of the taxbase, which must
have been an oversight when the original legislation was passed.
Locally in Wolverhampton there appears to be a widely held view
that this is being introduced to raise more Council Tax income,
rather than to ensure broad fairness of the amounts payable by
Council Taxpayers across England whilst aiming to raise the same
amount of income nationally. This point needs further emphasis
by Government.
11.3 I have some reservations about revaluation
only taking place every ten years, as opposed to five years for
business rates. Against a background of continuing steep rises
in domestic property values, such lengthy periods between revaluations
will not adequately address the issues of fairness across the
nation, and also seems likely to require lengthy and expensive
transitional relief schemes.
11.4 There is also a strongly held view
locally that at least two additional bands are required—one
at the top and one at the bottom of the existing eight bands—in
order to further enforce issues of fairness and accountability.
12. Non-Domestic Rates
12.1 There is no strong desire locally for
the return of the non-domestic rate to local control, or to proceed
with the option of being able to levy a modest supplementary non-domestic
rate levy.
12.2 The introduction of Business Improvement
Districts appears, superficially at least, an attractive way of
boosting local regeneration and employment. However, it is most
unlikely that the proposal will be used in Wolverhampton—or
indeed an other local authority—in view of the complex and
expensive hurdles to be overcome surrounding local referendums
and higher local taxes. It seems probable in my opinion that other
routes to secure local investment through regional development
and other agencies will continue to provide the simplest and most
effective way of making progress.
13. Public Service Agreements
13.1 The Government do not envisage that
local PSAs will be a major source of additional funding for local
authorities but they do expect local PSAs to lead to better working
between Government and local authorities. The most important point
to emphasis about PSAs is that they clearly set out a small number
of key service areas that are to be actively targeted to improve
performance at a local level. These will cover both local and
national priorities.
13.2 The experiences of soma pilot PSAs
is that some central government departments appear to be finding
it difficult to meet the target dates set out in local PSAs for
delivering the freedom and flexibilities which form part of the
agreement.
13.3 To achieve the stretched targets contained
with a PSA will require additional investment—over and above
the pump-priming capital grant available from Government. Such
investment may well be required on an on-going basis if the higher
service standards are to be reached and then maintained going
forward. This may well require higher Council Taxes to be set
or resources to be transferred from other services, which may
well prove to be counter-productive. The significant time lag
between investing the additional resources required to start to
raise standards and the payment of the performance grant—some
two years afterwards—is clearly not helpful. Similarly,
authorities will be faced with financial difficulties once the
performance grant has expired but the need for ongoing expenditure
remains in order to, at least, maintain the higher service standards,
which hopefully would have been achieved.
B Bailey
Co-ordinating Director for Finance and Physical Resources
Wolverhampton City Council
24 June 2002
| 
