Memorandum by Birmingham City Council
The general proposal in Chapter one to replace
the current capital control system with a "prudential"
framework is strongly welcomed:
it will remove unnecessary and prescriptive
regulation under the current system
it will make local authority finance
more "joined up" allowing revenue and capital priorities
to be considered together and enabling more confident medium term
and strategic planning
it gives authorities more control
over their own capital programmes enabling better (and more) local
investment where authorities can afford it
There are however some particular features which
restrict the usefulness of the capital proposals:
Local authorities need more of their
revenue finances raised locally and less determined by the government
before they will feel confident that they can support substantially
increased capital investment.
Chapter one is heavily reliant on
as yet unknown secondary legislation. The risk is that this could
become as detailed and prescriptive as the current controls.
Clause 4(1) allows the Secretary
of State to impose two types of limit on borrowing:
(a) a national limit intended for times
of macro economic stringency;
(b) a limit on particular authorities which
the Secretary of State thinks may be going to act imprudently.
The introduction to the Commentary on Part one
says "it is envisaged that these [powers] would be used only
in exceptional circumstances". We are however concerned at
the risk of abuse or overuse of these powers. The 4(1)(b) limit
in particular gives wide discretion to impose limits on particular
authorities and we are concerned at the breadth of this selective
power. Moreover, authorities are absolutely prohibited from exceeding
the Clause 4 borrowing limits. This is more draconian than the
current system, which always allows authorities to borrow to finance
short-term cashflows and existing commitments. The Clause 4 limits
should apply only to new borrowing to finance capital
the perpetuation of the existing
local authority company controls is regrettable (Clause 18). They
date from an era when authorities were being discouraged from
partnership with others, and do not fit today's partnership agenda.
the power for the Secretary of State
to require capital receipts to be paid to the government (clause
10) is too wide. It is intended to permit housing capital receipts
to be collected and redistributed to authorities. The power should
be limited to housing and should include an obligation to redistribute
the resources collected.