Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Local Government Information Unit (LGB 25)


  1.2  The Local Government Information Unit is an independent organisation with 150 affiliated local authorities, and the main public sector trade unions. The LGIU submitted a formal response to the White Paper, Strong Local Leadership—Quality Public Services, and initiated and managed the Commission on Local Governance, which has been examining the White Paper and recently published its own report.

  1.3  We welcome the Government's expressed intention to develop greater autonomy for local government in England. The White Paper recognised that many central requirements actually undermined the vital task of delivering good service to the public locally. We have specific concerns on three aspects of the Bill, which we believe need to be addressed if greater autonomy is to be achieved:

    —  The local government finance regime and changes to housing finance.

    —  The new performance management regime and integration with trading and charging.

    —  The need for measures that will help to build a sustainable future for councils through the recruitment and retention of effective elected members and officers.

  We make a number of broad points in addition to our specific comments.

  Our submission is underpinned by a recent review of the European Charter on Local Self- Government by Jeremy Smith, Director-General, Council of European Municipalities and Regions, undertaken for the Commission on Local Governance. (Report Free to Differ, LGIU 2002).


  2.1  The Bill will implement key elements of the government's programme, the overall theme of which is to change the relationship between central and local government. This is emphasised in the introduction to the Bill: the aim is "to establish a partnership for delivery of high quality local services and secure strong and responsive leadership by local government, freed from unnecessary government controls". We hope that the Committee will consider whether the proposals in the Bill will have this effect.

  2.2  While welcoming the government's approach, it is our belief that, despite having positive intentions, the government is not in practice yet ready to allow the degree of decentralisation of responsibility that is implied by its broad aims. Despite the stated positive approach to local government finance, implementation of the new framework will be subject to intensive regulation and the exercise of ministerial discretion. The proposals for comprehensive performance assessment fail to strike a balance between national and local interest. Moreover, by integrating the ability of councils to act with increased flexibility to the CPA framework, the government does not deliver on its promise in the White Paper, to provide "wider powers to trade for all authorities", and it introduces limits on the decentralisation provisions introduced by Section 5 and 6 of the Local Government Act 2000.

  2.3  We believe that, as a result, the proposals in the Bill risk being in breach of the European Charter of Local Self-Government, signed by the incoming Government in 1997 and ratified in 1998. We would like to see the provisions in the Bill tested against the European Charter and modified where necessary to ensure compliance. In particular, we endorse the recommendation of the Commission on Local Governance, which called for a formal commitment to a mature relationship between local and central government. The first step would be to recognise the principle of local self-government, in compliance with the Charter, in local government legislation. We believe that there is a sufficient consensus between the government and the main opposition parties to agree a basic statement of the principles of local democracy as the first clause in the Bill.


  3.1  We welcomed the White Paper's recognition of the need to improve training and development, but were concerned at the absence of measures which would tackle the disincentives to public service as a councillor. We believe that additional measures are needed to tackle this. This would increase the range of candidates for office. Changes should include a scheme to compensate employers who give time off for public duties; attention to the interrelation of member's allowances and benefits; pensions to be available for non-executive councillors; reform of the disqualification of council officers standing for council elections introduced by the Local Government and Housing Act 1989; the requirement, rather than discretion, for childcare and dependant care allowances to be paid, all of which will require prior legislation. We hope that the Committee will explore these issues in its deliberations and make recommendations to the government.



  4.1  The financial provisions are largely welcome—indeed, the LGIU and others have been calling for the earliest possible introduction of the prudential framework, the new power to charge, and changes to trading rules. However, the proposals display the clear tensions within Government over the stated objective of strengthening local government and anxiety at giving up any central control.

  4.2  Although the Bill will allow for more local discretion in some areas of finance, there has not been evidence of much progress on the fundamental issue of the balance of funding. The review group examining the issue has not even started work yet, despite the original pledge that it would publish initial findings in May. On the ring-fencing of funds, despite the commitments made in the White Paper to a reduction, there was a large increase in the RSG settlement of ring-fenced funds. Again, there is little evidence that this is being taken seriously, especially by the Department of Health and the Department for Education and Skills.


  5.1  The proposed system is clearly an advance on the current capital finance system: it simplifies the system; is far less prescriptive than the current regime; it should help longer-term financial planning; and should enable some schemes to go ahead that would have been prevented currently. We do, however, have concerns about the increases in the Secretary of State's powers of regulation and direction, the inclusion of reserve powers, and whether the system in practice will actually allow much increased investment.

5.2  Reserve power to impose limits on aggregate local authority borrowing and on an individual authority: Clause 4(1) (a) & (b)

  The national limit will be divided between councils and overrides the self-determined prudential limit. The explanatory notes say that the power could be used "to protect the country's economic interests" and "to prevent imprudent action at a local level". The provision in the Bill will mean that, in effect, the Government will be able to use its reserve power to set a national borrowing limit whenever it chooses to do so. Secondary legislation could further increase central prescription. There will always remain the danger that this, or a future Government will use these powers to reintroduce capital controls that are little different in practice from the present system. We do not believe these powers are justified from a macro-economic perspective and they weaken the self-regulatory nature of the system. We do not believe that these reserve powers are necessary and would want clarification over in the precise circumstances in which the powers will be used; will the national limit be used when the system is introduced; and if so, will there be a time limit on it?

5.3  Government support for capital spending

  How the Government intends to support capital spending will be critical, both in relation to whether the system is affordable and whether it will provide a genuine level playing field between public and private finance. Authorities have to meet the affordability test, as regulated by the "prudential code", and have to keep under review the ratio of loan charges to revenue income. There will not be room for large-scale increases in capital investment. The nature of Government support will remain key to affordability. The present system is fragmented and not transparent. The vast majority of support is presently ear-marked. It has a built in bias towards private finance. It is likely that future support will continue to be a mix of Government-supported schemes and different sorts of earmarked grant. If this is the case, it will, as now, restrict authorities' discretion to decide which schemes to progress and how they should be funded.

5.4  Credit Arrangements

  Credit arrangements will continue to be treated like borrowing under the new system. The affordability assessment has to take account of these. The credit arrangements (as now) may only be entered into for capital purposes, but PFI is treated differently, in that PFI contracts will be able to provide both capital assets and related management services. The support for PFI arrangements seems inconsistent with the concern about credit arrangements expressed in the provisions covering them in the Bill. The Government intends to continue with PFI credits. The continuation of PFI credits means that there will still be an in-built bias towards private finance. The LGIU wants to see a system where authorities can choose the most appropriate option for financing projects and this would mean that revenue support would be available for traditional procurement on the same basis as for PFI.

Clause 18: Local authority companies

  5.5  The present system that authorities cannot evade the capital controls by operating through companies they own or influence will be preserved, both for the purposes of the prudential limit and any limit under reserve powers (clauses 3 and 4). The LGIU believes that the arrangements for local authority controlled or influenced companies should be additional to those for the local authority itself. Otherwise the issue of "capital displacement" will still arise, since the level of increase in the local authority's debt must not exceed the statutory prudential indicators under the new framework. It was expected that the prudential framework would establish a new legal framework for the financial control of local authority companies. This connection was recognised by the Government and changes have been hinted at previously (DETR, September 2000, Annexe B, paragraph B10).

  5.6  It is disappointing that the Bill fails to do this. Instead it builds on the provisions of Part V of the 1989 Act which is recognised to be a barrier to partnership working. The system stifles local authority initiatives and prevents the development of innovative and effective solutions to emerging problems that the Government is keen to encourage. The LGIU believes that Part V of the 1989 Act should be repealed and replaced with a system of control that allows local authority companies to use their own resources to finance additional borrowing. This needs to be linked to a framework that treats them as separate from their parent local authorities.


  5.7  The Bill sets out new duties on authorities regarding budget setting and financial administration. The LGIU recognises the need for robust financial management, especially in the context of the prudential framework, but we do not accept that these new statutory powers are necessary. Although they may not mean, in practice, major intervention by the centre, they reflect a culture of centralisation that the Bill was supposed to reverse. There is already in place legislation that ensures authorities administer their financial affairs in a proper way, such as section 151 of the Local Government Act 1972.


  5.8  The LGIU does not support the proposition to merge revenue support grant with the national non-domestic rate into a new single "formula grant". The explanatory notes say that "simplification will improve the intelligibility and transparency of the grant system". We believe, on the contrary, that the new grant would make the system even less transparent and would be unhelpful in developing relationships with local businesses. We are unclear what are the implications, if any, for individual councils—any implications need to be carefully considered.


  5.9  We support the introduction of a statutory revaluation period, although we feel that the period should be shorter between revaluations, and we would have wanted to see the next revaluation happen earlier than the proposed 2007 date. We welcome the clarification over the Secretary of State's right to change the number of bands. We are concerned, however, that the Government will see these proposals as being sufficient reform. We believe strongly that there needs to be fundamental change to make the council tax a much fairer tax. This is given greater urgency by the proposal to introduce a regional tier of Government that will be funded through council tax.

6.  PART 7—HOUSING FINANCE (CLAUSES 48 & 49, 88-99)

  6.1  LGIU supports the introduction of the "prudential framework" (see Capital Finance above). We understand that it is the Government's intention that local authorities should determine a separate affordable borrowing limit for the Housing Revenue Account.

  6.2  The prudential framework provides Government with an opportunity to enable local authorities to offer tenants given levels of investment regardless of the choice they make in relation to future housing management (continued direct management, ALMO, stock transfer). To achieve this, local authorities need sufficient future revenue streams to finance the servicing of new debt. This either requires a specific HRA subsidy stream or that the assumptions built into the subsidy formulae about rent levels and management and maintenance allowances create revenue surpluses that can be used to meet future debt charges. The Government could establish a dual system of guideline rents for the HRA. The first guideline rent would be the rent that will achieve convergence over the 10 year timeframe, the second guideline would be set below the first guideline rent and would be the figure used in the HRA subsidy calculation. This would create a rental stream used in calculating the HRA element of the "affordable borrowing limit".

  6.3  In relation to the repayment of outstanding loan debt the explanatory notes are explicit in stating that "the purpose of these clauses (48 and 49) is to facilitate the transfer of council housing to registered social landlords". In some areas the "reserved receipt" from the sale of the housing stock is insufficient to meet the outstanding debt liabilities. This is sometimes referred to as "overhanging debt". The draft Bill extends the powers of the Secretary of State to meet the costs of outstanding loan debt to include the premiums arising from the early repayment of loans.

  6.4  The Junior Housing Minister revealed recently that the Government had made significant financial provision for such payments:

    —  Ms Keeble: [Holding answer Tuesday 26 March 2002] The overhanging debt payments made to date are £21 million in 1999-00 and £256 million in 2000-01. No payments were made in 2001-02. The projected costs are £500 million in 2002-03 and £800 million in 2003-04. These are estimates and are likely to change as details of transfer proposals are finalised.

  The provision of £800 million made for the financial year 2003-04, is only £42 million less than the total housing credit approvals (£842 million) available to local authorities for investment in their housing stock.

  LGIU could not support a proposal to give the Secretary of State the power to use public funds to meet the penalties associated with early debt redemption, unless similar powers (and funds) are available to the Secretary of State to enable tenants and local authorities to have the choice of investing in the public housing stock without the need for stock transfer. Otherwise the Government's claims to be offering tenants choice are, in practice, not meaningful. LGIU notes that the previous Secretary of State was unequivocal when he stated in relation to the delivery of the decent homes targets: 'It is a commitment that will be met irrespective of any decisions which are taken by tenants.' (House of Commons Select Committee, 16 January 2002)

  6.5  LGIU supports the publication of draft legislation to remove rent rebates and housing (rent rebate) subsidy from the Housing Revenue Account (Clauses 88-94). The proposals mean that rent rebates and rent rebate subsidy should be removed from the HRA by 1 April 2004, implementing proposals first published by the Government on 15 December 1998.



  7.1  In previous consultations and in the White Paper, the Government indicated its intention to provide a flexible power for all local authorities to impose a charge for discretionary services. There has been a considerable delay in waiting for these proposals, and we are concerned that they will now be accompanied by what appears to be an over-prescriptive regulatory framework. LGIU questions whether it is either necessary or appropriate for the Secretary of State to determine either the amount that an authority can charge or how that charge is derived.

  7.2  Equally, LGIU believes that regulations that limit the income from "charges" from "any kind of service" to the costs (called the proper costs) of providing that kind of service, except where the regulations provide otherwise, are inappropriate and may discourage innovation.

Trading—Power to trade in function related activities

  7.3  In previous consultations, and in the White Paper, the Government's intention was to make trading powers available to all authorities. While LGIU welcomes the proposal in the draft Bill to give the Secretary of State power to make an Order enabling best value authorities to trade in any of their ordinary functions, we are concerned by:

    —  The intention to link the scope of the trading powers and an authority's performance under the Comprehensive Performance Assessment (CPA). The CPA is not an assessment of whether an authority is likely to secure best value through supplying goods and services to others under contract. Nor is it an assessment of whether it is appropriate to do so, in relation to the power of well-being. The CPA has not been designed for this purpose.

    —  Delay: if the Government intends to rely solely on this proposed primary legislation, subsequent secondary legislation will be required in the form of regulations, guidance and orders. Local authorities will have to wait at least a further 18 months before the primary legislation is on the statute books and probably a further 12 months before there is any significant potential change in relation to trading. This will have the effect of further frustrating the prospect of service improvements raised by the Local Government Acts 1999 and 2000.

    —  Local authorities that are already providing a range of goods and services to others under contract, which are not classified as high performing or excellent, may be prevented from entering into new arrangements, even where this would secure best value (eg the provision of grounds maintenance services or a graffiti removal service to private sector businesses as part of an integrated approach to the environment or the provision of mobile CCTV services to a developer to protect a development site)


  8.1  The introduction of performance categories is essential to the Comprehensive Performance Assessment framework currently being introduced by the Government. This system of inspection and review falls within the provision of the European Charter that regulates the administrative supervision of local authorities, which thereby require balance and proportionality. We believe that the totality of the performance assessment proposal, which consists of the performance categories and the framework of penalties and incentives identified in the White Paper, is over-centralised and detailed, and does not comply with the Charter.

  8.2  We want to see the improvement of public services, and had been encouraged by promises of proposals for "better" performance management, giving councils greater freedoms, flexibilities, incentives and capacity. However, some of the claims in the White Paper ring a little hollow when the detail is examined. We do not support the classification of councils into four categories. If the Government is going to continue with this policy, as a minimum, the classification system needs reworking to introduce more constructive terminology and a stronger element of peer review and community input. The emphasis of inspection and classification should be on supporting councils to improve. Classification should reflect the actual circumstances faced by different authorities, and respond quickly to improvement.

  8.3  The Government needs to acknowledge that councillors might disagree with an Audit Commission assessment that might also be rejected by the local community. It must put in place a mechanism whereby councils can challenge or appeal against their classification. The Bill as drafted specifically excludes appeal to the Secretary of State. The Committee may want to question Government on whether there will be an appeal system, and how it will work.

Dennis Reed

Local Government Information Unit

June 2002

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