Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Wolverhampton City Council (LGB 02)


  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

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