Memorandum by Leeds City Council (LGB
16)
1. INTRODUCTION
1.1 This submission sets out the comments
of Leeds City Council on the Draft Local Government Bill issued
on 12 June 2002, as requested by the Transport, Local Government
and the Regions Select Committee inquiry.
2. PART 1: CAPITAL
FINANCE AND
ACCOUNTS
2.1 Local Authorities will be able to borrow
against future revenue streams for the purposes of capital investment
and to refinance existing debt. Powers will also exist to invest
for any purpose relevant to its functions but also for prudential
financial management of its affairs. (C1)
Comment: We welcome this initiative, although
there is concern that the draft bill does not include any indication
of what form Government support for capital investment will take
or how the affordability of borrowing will be judged. We also
welcome the wider powers to invest, which will give new opportunities
for prudential management of authoritys' financial affairs.
2.2 The main borrowing control will be the
duty not to breach the prudential and national limits. (C3)
Comment: The prudential indicator system is
welcomed as a method of control. The Council recognises that there
may be a need for the Secretary of State to apply over-riding
limits in the national interest, but would hope that such powers
would only be exercised in extreme circumstances. The Council
would wish to seek further guidance on the use of over-riding
limits, in relation to the Council's short and long term cash-flow
planning commitments.
2.3 In addition there will be power for
the Government to make regulations about the technical details
of borrowing. (C3)
Comment: The Council welcomes the recognition
of the importance of practitioners in developing the regulatory
framework, through the reliance on the prudential code being developed
by CIPFA, rather than prescribing the detail in regulations.
2.4 The Government will have reserve powers
to impose "longstop" limits on all authorities' borrowing
and these would override authorities' self determined prudential
limits. (C4)
Comment: We would question the need for national
limits given the prudential code but if this goes ahead we would
hope that this reserve power would be used only rarely, if at
all (see also 2.3).
2.5 If an individual authority did not wish
to take full account of the borrowing permitted under the national
limit, it would have the power to transfer spare "headroom"
to another authority subject to a corresponding limit. (C4)
Comment: It may be that this capacity to transfer
headroom is similar to the current arrangements where credit approvals
may be transferred, but the wording of the clause and the explanatory
notes appear contradictory—the clause implies both authorities
would be subject to the national limit, but the explanatory note
suggests that the transferee could be subject to its own prudential
limit.
2.6 Credit Arrangements. (C6 and 7)
Comment: It is not clear how the proposed simplification
of credit arrangements complies with the current regulations on
what constitutes a credit arrangement. Clarification on relationship
between clauses 6 and 7 and the Local Authority Capital Finance
Regulations would be welcomed.
2.7 Capital receipts. (C8,9,10 and 11)
Comment: Accounting for capital receipts when
the receipt is expected rather than when the receipt is actually
received should hopefully provide more stability in capital programme
planning. Not only will there be more certainty in respect of
resources, but we will also no longer have the situation at year
end where there can be a rush to ensure that receipts are actually
received in that financial year. The proposed pooling of set aside
Housing capital receipts might be seen as a disincentive to generate
capital receipts although the reality is that the Council cannot
influence tenants' decisions to take up a right to buy option.
We have concerns that the Council could be disbenefitted by this
pooling arrangement.
2.8 The present rules requiring part of
housing receipts to be "set aside" for debt redemption
will disappear and be replaced by new arrangements, including
"pooling" a proportion of such receipts. This will allow
spending to be redistributed from richer Authorities to those
in areas with a greater need for new housing investment. (C10)
Comment: It depends what the redistributive
mechanism would do, and what factors it would take into account.
For instance, how would it be determined what a high level of
receipts in an area are, and, more difficult, how will investment
need be determined?
In areas with ALMO's it would be difficult to
justify the top slicing of receipts generated in one part of the
authority for the benefit of another part; to justify top-slicing
for the benefit of another local authority area will be even more
difficult.
2.9 The mortgaging of property will continue
to be prohibited. (C12)
Comment: The Council agrees that it would be
inappropriate to mortgage local authority assets.
2.10 The new system will as far as possible
take standard local authority accounting practices and comments
as its starting point thereby avoiding the need for special definitions
in the legislation. (C16,C21,C22)
Comment: We welcome the continued reliance on
the accounting codes of practice rather than prescription in regulations.
General Comments: It is unclear what the impact
will be on PFI.
3. PART 2: FINANCIAL
ADMINISTRATION
3.1 The Secretary of State will be given
the power to determine the minimum level of reserves. (C25)
Comment: It is not clear how the minimum level
of reserves would be calculated. The Council questions whether
such a power is necessary, but if it is, it is important that
the minimum is set at a realistic level and allows some flexibility
to take account of individual circumstances.
3.2 The authority's chief financial officer
is required to make a report to the authority when it is considering
its budget and council tax. The report must deal with the robustness
of the estimates and the adequacy of the reserves. (C26)
Comment: An assessment of the robustness of
estimates and reserves is an implicit part of the budgetary process
and the proposals would do no more than make this assessment explicit.
However, at present the assessment is a judgmental process and
it is suggested that the professional bodies be asked to develop
guidance on this.
3.3 The Office of the Deputy Prime Ministers
outline of provisions in the Local Government Bill states that
Councillors will be required to take a role in budget monitoring.
Statutory duty to monitor the budget from time to time during
the year. (C27)
Comment: The Council welcomes this proposal
as a way of ensuring that members are fully engaged in the budget
monitoring process. We welcome the fact that the relevant clause
avoids prescription in the form and timing of reports.
3.4 Amendment of Section115 of the Local
Government Finance Act 1988 to enter into certain agreements during
the prohibition period.
Comment: Although we would anticipate that this
power would be used by very few authorities, the Council recognises
that it may help authorities manage severe financial crises more
effectively.
4. PART 3: GRANTS
ETC
4.1 RSG and NNDR will be merged and called
"Formula Grant" (C30).
Comment: We are concerned that it appears to
be a step further away from the possibility of returning business
rates to local control.
4.2 Where the net capital receipt is less
than the local authority's housing attributable debt, the Department
will agree with the local authority that on the condition that
the authority extinguishes debt with the Public Works Loan Commissioners
("PWLC") to the level of its net reserved capital receipt,
the Department will make a payment to extinguish the remaining
housing attributable debt. The Department's payment is dependent
on the local authority's payment having been made. The Department's
payment is known as an "overhanging debt payment" (C48-C49).
Comment: Accepted
5. PART 4: BUSINESS
IMPROVEMENT DISTRICTS
(BID)
5.1 A BID allows for additional services
or improvements of benefit to the local community that will be
funded by a levy raised in addition to the non-domestic rate.
Comment: The Council welcomes the development
of the BID proposals, but is concerned about the complexity of
the voting and administrative arrangements. The greater the complexity
the less likely it is that BIDs will be set up. There is still
uncertainty over how the levy would be calculated and accounted
for.
6. PART 5: NON
DOMESTIC RATES
6.1 Draft rating list to be published six
months in advance instead of 3. (C68)
Comment: This measure should help local authorities
in preparing for annual billing and in preparing estimates for
the NNDR1 return. It should also help businesses to plan future
costs more effectively but this, of course, depends on details
of the transitional relief scheme also being made available in
advance.
6.2 Small business rate relief to be funded
by a supplement on bills of other rate payers. Therefore there
will be two multipliers one small business non-domestic rating
multiplier and the other non-domestic rating multiplier. (C69)
Comment: We welcome the relief for small businesses
as a way of boosting the local economy at the grass-roots level
but we believe than the RV limits may be set too low. Analysis
in Leeds suggests that only businesses occupying the smallest
properties would qualify for the full 50 per cent reduction, we
therefore suggest that consideration should be given to raising
the lower limit from £3,000 to £5,000 and increasing
the upper limit from £8,000 to £10,000.
6.3 Change in the multiplier annually to
reflect erosion of the list. (C70)
Comment: We accept that there may be a need to change
the multiplier but this will be at the loss of predictability.
One of the fundamental principles of the NNDR system was that
businesses would be able to predict their future liability because
the multiplier would rise in line with inflation. This will no
longer be the case.
6.4 Transitional relief in the year of revaluation
to be self financing. (C71)
Comment: Whilst we understand the desire for
the system to be self financing, we are concerned that the system
must not impose heavy burdens on those businesses which would
otherwise have benefited from reduction in rates payable. The
system also needs to be easily explicable and to "unravel"
completely before the next revaluation to avoid transition upon
transition. It is also important that details of the scheme are
released as early as possible so that revenues billing systems
can be amended in time.
6.5 Rating of meters to be included. (C72)
Comment: This proposal would, presumably, prevent
some erosion of the tax base and ensure fairness of treatment
between utilities and their competitors, but we are not sure of
its practical impact.
6.6 Certificate is no longer required as
proof of entitlement to exemption on the grounds of religious
worship. (C74)
Comment: The removal of the certification requirement
could lead to uncertainty and an increase in the number of exemptions
which would erode the tax base, but the effect is unlikely to
be significant.
6.7 Adjustments for hardship relief. (C76)
Comment: We welcome the clause for unforeseeable
events such as foot and mouth disease, etc.
7. PART 6: COUNCIL
TAX
7.1 Revaluation cycle to take effect from
1 April 2007 and thereafter at least every 10 years. (C79)
Comment: A fixed revaluation cycle would be
preferable to ensure certainty. However, 10 years may be too long,
given the historic volatility of the housing market a seven or
eight year cycle may be more appropriate. We would also question
why the next revaluation is to be delayed so long. Could it not
proceed along the same timetable as that for Wales and be effective
from 1 April 2005?
7.2 The Secretary of State will have the
power to change the number of bands at the time of revaluation.
(C80)
Comment: Research by SIGOMA and others suggests
that revaluation must be accompanied by reform if equity is to
be maintained in the administration of council tax. The power
to vary number of bands (coupled with the existing power to vary
the proportion between bands) is vital to delivering reform.
7.3 Transitional Relief arrangements. (C81)
Comment: Our only comment on this is that the
proposals seem under developed and ill-defined compared to the
proposals for business rates.
7.4 Exemption of students from joint and
several liability. (C85)
Comment: We have had a number of difficult cases
in relation to joint liability for students and we wholeheartedly
welcome this proposal.
8. PART 7: HOUSING
FINANCE
8.1 Payment of the Subsidy. (C88)
Comment: The Council welcomes the proposed removal
of rent rebates from the Housing revenue account so that it becomes
a purely landlord function account. However it is imperative that
an appropriate level of subsidy is transferred with rent rebates
so that there is not a net transfer of resources to the detriment
of either an authority's HRA or General Fund.
8.2 Calculation of the Subsidy. (C89)
Comment: The clause sets out a number of factors
that may be considered in the determination of HRA housing benefit
subsidy. Whilst recognising that the Secretary of State will want
to allow himself considerable leeway to address various circumstances,
there should also be transparency with a clear statement advising
how the level of subsidy for an authority has been determined.
The assumptions made in the determination of
HRA housing benefit subsidy need to be realistic and reflect current
operational conditions. The credibility of current HRA subsidy
has been severely undermined by the divorce of the subsidy assumptions
from operational reality.
It has been indicated that it is intended to
establish the level of subsidy to be paid to an authority in advance
to facilitate an authority's budgeting decisions. To do this notification
ought to be made in late summer or early autumn prior to the new
financial year in order that any resource implications can be
properly considered in formulating a detailed budget strategy
for the new year.
8.3 Overpaid Subsidy. (C91)
Comment: Any interest applied to overpaid subsidy
should not be charged at excessive, punitive rates.
8.4 HRA business plans. (C95)
Comment: It is proposed that HRA business plans
will have to be compiled and submitted in a specified manner.
It is hoped that there will be continuity with current recommended
practice and that any required data to be included will take into
consideration current information requirements otherwise current
data information gathering processes will have to be created or
modified, which may have resource and time implications.
8.5 HRA subsidy : payment and calculation.
(C96)
Comment: The Council welcomes the proposed flexibility
to target additional subsidy to authorities with better services.
There should also be leeway to target additional resources to
authorities facing greater and more complex social pressures.
However if HRA business planning is to be robust
and authorities are to be able to assess the longer-term future
strategically, care needs to be taken by the Government to avoid
radical fluctuations in the level of an authority's subsidy from
year to year.
8.6 HRA subsidy : negative amounts. (C97)
Comment: The Council welcomes the proposed negative
subsidy arrangements. This would be a necessary mechanism to ensure
that national public housing resources are targeted nationally
to areas of greatest need.
8.7 Local authority housing rents. (C99)
Comments: This measure is welcomed to facilitate
local authorities' compliance with the rent restructuring policy.
9. PART 8: MISCELLANEOUS
AND GENERAL
9.1 Power for best value authorities to
be able to charge for discretionary services and to trade.
(C100-C104)
Comment: Whilst the Council welcomes the proposed
freedoms, the proposals will not give local authorities any greater
powers to provide services. The Council is concerned that the
powers to trade are to be linked to CPA performance.
10. OTHER
10.1 The three measures to be added to the
bill.
Comments: The Council particularly welcomes
the proposals to give billing authorities discretion over council
tax discounts and exemptions. More generally we are concerned
that other initiatives, notably the proposals for giving greater
discretion on the provision of information with council tax bills,
should not be forgotten in taking forward the draft bill and the
ongoing review of revenue grant distribution.
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