Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Birmingham City Council (LGB 09)

  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.

Sarah Wood

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