Memorandum by Local Government Association
(LGB 05)
The LGA is the representative voice for all
local councils in England and Wales. As the national voice for
local communities, the LGA speaks for nearly 500 local authorities
representing over 50 million people and spending £65 billion
a year on local services.
SUMMARY OF
EVIDENCE
— The Local Government Association
(LGA) is pleased to see the publication of the Draft Local Government
Bill.
— The LGA believes that a number of
the finance proposals in the White Paper—Strong Local Leadership,
Quality Public Service will be positive in their effects. Changes
to capital finance, housing finance, fees and charges, and the
ability to trade will represent significant new freedoms for local
councils and help them deliver improved services to their communities,
if they are implemented effectively.
— The LGA would like to see its Partnership
for Ambition approach providing the framework and context in which
the Bill should be set.
— We are concerned that that there
has been relatively little movement on the freedom and flexibility
elements of the White Paper. The Draft Bill is a welcome move
towards introducing them, but this is seen as only the start of
the process.
— The Bill contains a number of significant
deregulatory measures, the proposals for Business Improvement
Districts, rate relief for small businesses and changes to the
council tax, which the LGA supports. However, we want to see more
radical moves on finance and the balance of funding.
— The provisions for additional financial
management are unnecessary and interventionist and the means provided
to deliver the powers to trade and charge are much too cumbersome.
— The LGA sees the Bill is a step forward
but it will not address the fundamental problem of local government
finance, that the government retains too much control over local
authority income.
1. INTRODUCTION
1.1 The Local Government Association (LGA)
is pleased to see the publication of the Draft Local Government
Bill. We had actively lobbied for this Draft Bill and will take
up the opportunity to comment on its content in detail to inform
the final version, which we hope to see announced in the next
Queen's Speech.
1.2 The LGA believes that a number of the
finance proposals in the White Paper—Strong Local Leadership,
Quality Public Service will be positive in their effects. Changes
to capital finance, housing finance, fees and charges, and the
ability to trade will represent significant new freedoms for local
councils and help them deliver improved services to their communities,
if they are implemented effectively.
1.3 The government has issued a consultation
paper on the Draft Bill. The LGA will be seeking the views of
its member authorities and encouraging them to respond for the
deadline set by the Office of the Deputy Prime Minister, which
is 23 August 2002.
1.4 In the run-up to the publication of
the Local Government White Paper last year the LGA published Partnership
for Ambition. This set out our vision for delivering and supporting
real improvements in public services, by creating genuine partnerships
between central and local government. We want to develop a framework
that delivers outcomes nationally and locally, by working on two
levels—firstly a concordat between central and local government
at a national level, and secondly using more ambitious local public
service agreements to develop the relationship between central
government and individual councils themselves. We would like to
see this approach providing the framework and context in which
the Bill should be set.
1.5 There is concern that there has been
relatively little movement on the freedom and flexibility elements
of the White Paper. The publication of the Draft Bill is a welcome
move, which helps to address this, but it must be the start of
the process.
1.6 The Bill contains a number of significant
deregulatory measures, the most important concerned with capital
finance and with powers to trade and to charge, which the LGA
supports. However, we want to see more radical moves on finance,
with progress on the review of the balance of funding. We also
welcome the proposals for Business Improvement Districts, rate
relief for small businesses and changes to the council tax.
1.7 On the other hand, the provisions for
additional financial management are unnecessary and interventionist,
the proposal to merge the Revenue Support Grant and National Non-Domestic
Rates is unhelpful and the means provided to deliver the powers
to trade and charge are much too cumbersome. Subject to these
points, the Bill is a step forward but it will not address the
fundamental problem of local government finance, that the government
retains too much control over local authority income.
2. PART 1: CHAPTER
1: CAPITAL FINANCE
ETC—CLAUSES
1-20
2.1 The LGA welcomes the capital finance
proposals. The key features were first proposed by the LGA in
1998, namely the abolition of the current capital controls in
favour of greater freedom for local authorities to borrow to finance
capital expenditure, where they can afford it. The Capital Finance
Chapter is in line with the ongoing dialogue between the government,
the LGA, CIPFA and others about a new system of capital finance.
The LGA also supports the development of a CIPFA Prudential Code
for Capital Finance in local authorities, which will underpin
the proposals in Chapter 1.
2.2 We believe the "prudential"
system is a considerable improvement on the current capital finance
system because:
— In the words of the White Paper,
"the present capital control system blurs accountability,
limits local financial freedom and has become an obstacle to effective
investment".
— The current system (which includes
many statutory Regulations and Orders) is highly complex and over
prescriptive. Its abolition will enable significant lightening
of the regulatory burden on local authority capital finance;
— A consequence of the current detailed
control is that local authority capital is seen as the responsibility
of government. The new system will enable authorities to take
more responsibility and be more accountable for their capital
investment.
— The Audit Commission and others have
criticized the current system for resulting in inefficient investment
because it is based on central government prescription rather
than on local choice which takes account of locally identified
needs and priorities.
— Authorities will also be able to
coordinate their revenue and capital priorities more effectively
and develop more consistent strategic plans. They will be able
to plan more confidently for the medium term.
— The new system will free authorities
to borrow to finance investment where they have the revenue resources
to support it. This will enable authorities to finance investment
priorities, which the current capital system has not adequately
resourced or facilitated, such as "spend to save" schemes.
It will enable a modest increase in capital investment, to the
extent that authorities can afford (and choose to incur) the revenue
consequences.
2.3 However, the Secretary of State will
have wide powers to make new regulations, directions and orders
under Chapter one and this brings as always the risk of undue
prescription developing in secondary legislation. These include
clauses:
— 2 (3)—making provision
about agreements by a local authority to borrow money ("loan
agreements")
— 3 (1)—the duty to determine
and keep under review how much money a local authority can afford
to borrow.
— 4 (1) (a) and (b) setting limits
in relation to the borrowing of money by local authorities, or
a particular local authority.
— 4 (4) The Secretary of State
may make provisions for the circumstances in which a local authority
is regarded as having headroom (the amount it can borrow) and
the amount of headroom a local authority may transfer under subsection
3.
The LGA would prefer to see all or some of these
powers omitted from the Bill.
2.4 Clause 10 also enables the Secretary
of State to require local authority capital receipts to be paid
to the government. This would enable such resources to be redistributed
to other authorities. This is a controversial issue among local
authorities, given that some will gain and some will lose as a
result and both sides will argue their case strongly. If the Government
is intent on pursuing this line, then the LGA believes that this
power should be accompanied by an express requirement to redistribute
the resources amongst local authorities and should be limited
to housing capital receipts, which is the government's stated
intention in the Local Government White Paper (Part 2, Chapter
5, paragraph 5.26).
3. PART 2: FINANCIAL
ADMINISTRATION—CLAUSES
25-28
3.1 The LGA is opposed to the proposals:
— giving the Secretary of State power
to determine a minimum reserve level for local authorities by
regulation (clause 25).
— requiring chief finance officers
to report on the adequacy of reserves and robustness of budget
estimates (clause 26).
— giving local authorities a statutory
duty to monitor their budgets and take action in the case of overspends
and shortfalls of income (clause 27).
3.2 We are not convinced that there is a
need for new statutory powers to specify the level of local authorities'
reserves or to monitor budgets over and beyond those already on
the statute book. Examples of current provisions being section
151 of the 1972 Local Government Act, which requires every local
authority to make proper arrangements for the administration of
the financial affairs and section 114 of the 1988 Local Government
Act which gives chief finance officers powers in the event of
overspending. These proposals involve more regulation, not less,
in a Bill generally designed to achieve deregulation, and run
the risk of more intervention by the Secretary of State. We are
not aware of convincing evidence that these new provisions are
needed.
3.3 We do however welcome the provisions
in clause 28 which ease restrictions preventing local authorities
from entering into agreements following a "section 114"
report.
4. PART 3—CHAPTER
1—FORMULA GRANT—CLAUSE
30
4.1 The LGA does not support the proposal
in clause 30 to consolidate Revenue Support Grant and National
Non-Domestic Rate (NNDR) income into a single "formula grant".
4.2 This proposal will not add to the transparency
of local funding arrangements. We believe that the separate identification
of NNDR is important, particularly in the context of local councils'
discussions with their business community and in the context of
the proposals to develop Business Improvement Districts.
4.3 A number of shire districts stand to
lose through this proposal. These are districts, which are not
currently in receipt of Revenue Support Grant, because their income
from redistributed NNDR more than covers the difference between
their Standard Spending Assessment (SSA) and their income from
council tax, assuming this is set at the Council Tax at Standard
Spending (CTSS) level.
4.4 The Select Committee has previously
accepted the case for increasing the level of council finance
raised locally. One of the most obvious ways to do so would be
by means of the localisation of the business rate. This proposal
will be seen to take us further away from this objective.
5. PART 4—BUSINESS
IMPROVEMENT DISTRICTS
(BIDS)—CLAUSES
50-67
5.1 Business Improvement Districts (BIDs)
will be a useful development to finance town and city centre improvement.
BIDs can be used in rural as well as in urban areas; voluntary
town centre partnerships already operate in a number of varied
areas.
5.2 We welcome the fact that the power in
the Draft Bill is a broad enabling power allowing partnerships
to determine as much detail as possible. A BID is most likely
to emerge where there are well-grounded partnerships.
5.3 The LGA is working with the business
community to produce draft guidance in November 2002 on the practical
arrangements of setting up a BID, and final guidance will be published
once relevant legislation is enacted. Like the Bill itself, guidance
will be written to allow as much flexibility to reflect local
circumstances.
5.4 One issue which the guidance must resolve
is the participation of the property owner. They are likely to
benefit from the BID but there is no mechanism to make them contribute
in exchange for this added value to their property.
6. PART 5—NON-DOMESTIC
RATES—CLAUSES
69 AND 71
6.1 The Draft Bill contains a number of
measures amending non- domestic rating legislation which the LGA
is generally content with. The LGA specifically welcomes the proposal
for rate relief, in clause 69, for small businesses for which
we have lobbied for several years. We recognise that small business
pay disproportionately more in rates than do larger businesses
and have worked to produce a simple scheme to grant relief. We
also note the proposal in Clause 71, which states that transitional
relief will be a permanent feature of rating revaluation.
7. PART 6—COUNCIL
TAX—CLAUSES
79-87
7.1 The LGA welcomes the proposed changes
to the council tax. The LGA has long argued that the acceptability
of the council tax depends on it being seen as a fair tax and
one that is kept up to date. There have been considerable changes
in relative property values since 1991 when the existing council
tax bands were set and we support the intention to hold a new
revaluation in 2005, to take effect for 2007-08, and regular revaluations
at least every 10 years thereafter.
7.2 The LGA also believes that to improve
the fairness of the council tax and enhance its long-term stability
the number of council tax bands and the ratios between them should
be reviewed. We therefore welcome clause 80, which clarifies the
power of the Secretary of State to vary the number of bands.
7.3 The introduction of new valuations for
council tax could have substantial and unpredictable effects on
the bills for some households. It is therefore essential that
there are transitional arrangements to phase in large changes
to council tax bills. The LGA welcomes the transitional arrangements
set out in clause 81, which enable a scheme to be introduced to
smooth the effects of changes in council tax liability.
7.4 Clauses 82 to 84 provide for some relatively
minor, but useful, changes to the powers available to local authorities
to enforce payment of council tax. These should help to ensure
councils are able to maximise their council tax collection rates.
7.8 Clause 86 enables combined fire authorities
to become precepting authorities rather than levying authorities,
as at present. The LGA supports the proposal that areas which
wish to experiment with the introduction of precepts for CFAs
should be allowed to do so and has established a task group under
its Fire Executive to examine the implications.
7.9 The LGA is pleased that the legislative
basis of the council tax benefit subsidy limitation scheme, under
which local taxpayers had to meet the additional costs in benefits
of council tax rises above a certain threshold, will be abolished.
7.10 We are disappointed that there are
no specific clauses to give local authorities discretion to remove
the council tax discount for second homes and to retain the proceeds
for local use. We understand that Ministers have agreed, in principle,
to making provisions for this is in the Bill, but are considering
the technical aspects before any final decision is made.
8. PART 7—CHAPTER
1—HOUSING FINANCE—CLAUSES
88-94
8.1 The LGA welcome the fact that legislation
is finally being introduced to permit the removal of rent rebates
from the HRA. It will also simplify the procedure for paying housing
benefit subsidy to local authorities in England, since the responsibility
is currently shared between ODPM and DWP and it will enable the
National Assembly for Wales to exercise the powers in relation
to Wales.
9. PART 8—CHAPTER
1—CHARGING AND
TRADING—CLAUSES
100-104
9.1 Fees and user charges currently make
a substantial contribution to the overall funding of local services.
But, generally, local authorities may only levy charges for services
where there is a specific power to do so, and many fees and charges
are fixed according to government scales. The LGA supports the
view of the Audit Commission that there is significant room for
improvement in the way that local authorities could use charges
to meet policy objectives.
9.2 One valuable step would be to give local
authorities a general power, and we therefore welcome these clauses,
which provide for a new power for best value authorities to charge
for discretionary services. However, there are limitations to
this power to charge. It may be limited to only certain authorities
defined under the Comprehensive Performance Assessment framework,
and may be limited to cover only the recovery of costs.
9.3 It is widely accepted that the legal
basis for local authority trading is complex, contested and inadequate.
The LGA believes that authorities should be free to supply services
to others, whether public, voluntary and private bodies and individuals,
where:
— such services are of high quality;
— trading does not compromise the financial
health of the authority; or
— inhibit the development of competitive
local supply markets.
9.4 The Government consulted last year on
proposals to extend powers to trade through an order under section
16 of the Local Government Act 1999. Section 16 allows the Secretary
of State to remove by order obstacles imposed by primary legislation
to the achievement of best value by local authorities. However,
such orders are subject to a "superaffirmative" procedure,
which is hardly less time-consuming than primary legislation.
No order under section 16 has yet been laid.
9.5 The LGA welcomes the fact that clause
102 improves on section 16 by conferring, through primary legislation,
explicit powers to permit trading, and making orders under this
power subject to the negative resolution procedure, which is much
less lengthy and cumbersome than the procedure for orders under
section 16.
9.6 Clause 103 permits the Secretary of
State by order to amend or annul any enactment of any enactment
obstructing trading or charging. However, such orders are subject
to a "superaffirmative" procedure. This has the effect
of significantly diluting the effectiveness of clause 102 as a
means of making progress towards a clear legal basis for trading
activity. The LGA would prefer this Bill to be used directly to
remove as many of the obstacles to trading as can be identified
before it is laid before Parliament.
10. PART 8—CHAPTER
1—PERFORMANCE CATEGORIES—CLAUSES
105-106
10.1 The LGA has expressed serious concerns
about the development of the Comprehensive Performance Assessment
Framework. We believe that:
— the CPA should focus on delivering
improvements through an agreed improvement plan for each authority;
not on categorisation,
— the CPA should deliver a rationalised
and better co-ordinated system of inspections for councils; and
— the inspector's judgement recommendations
and agreed action plan should be published at the same time to
focus debate on the proposals for improvement.
10.2 The LGA opposes the allocation of authorities
through CPA to just four categories, particularly if that categorisation
leads to authorities being treated in ways inappropriate to their
circumstances. We are continuing to press for the Government to
reconsider both the number of categories and the terms used for
them. As part of this process every council should have access
to a package of support which match its needs, circumstances,
ambition and capacity.
10.3 There is frustration at the relative
lack of progress in making promised freedoms and flexibilities
available to councils. The important thing now will be to identify
additional worthwhile freedoms and make them available for councils
to use.
11. PART 8—CHAPTER
1—OVERVIEW AND
SCRUTINY COMMITTEES—CLAUSE
113
11.1 The Association supports the proposals
to allow councils to co-opt voting members onto their overview
and scrutiny committees should they wish to do so. At present
legislation only allows for church and parent-governor representatives
to sit with voting rights on those overview and scrutiny committees
covering education services. Many authorities are already involving,
or trying to involve members of their communities, in their overview
and scrutiny arrangements.
11.2 The LGA hopes that any regulations
or guidance issued as a result of this clause will not be prescriptive
and will allow councils to develop arrangements which meet their
and their local partners' needs.
12. PART 8—CHAPTER
1—LOCAL POLLS—CLAUSE
114
12.1 The LGA welcomes this clarification—as
far as it goes. Local referenda can be a useful mechanism for
councils (in pursuing their role as community leaders) to promote
local debate or gauge local feeling on important matters affecting
the well-being of the local community. It is disappointing that,
having taken this opportunity to clarify council's powers to conduct
advisory polls the proposal does not extend to these wider circumstances.
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