Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Wandsworth Council (LGB 30)

  1.  Part 1, according to the explanatory memorandum, gives local authorities freedom to borrow for capital expenditure "where they can afford to service the debt without Government support". This affordability criterion virtually negates the purported freedom: given the heavy dependence of local authorities on annual Government support, no prudent authority could assess that long term borrowing is affordable, in any ordinary sense of that word, unless there is a good expectation of full Government support. Such an expectation is the basis upon which local authorities have borrowed for many years, under the Standard Spending Assessment regime and its predecessors. Without it, local authorities can only speculate about the total level of resources that may be available to them, and the demands they may face, over the period of the debt. The Government expect that the Chartered Institute of Public Finance and Accountancy will develop a "prudential code" that will define what borrowing is and is not affordable. The Institute has prepared a draft code which will impose more performance yardsticks and bureaucratic procedures on local authorities, but it cannot address the fundamental problem, that local authorities cannot assess affordability for years ahead. The overall effect of these proposals would therefore be an increase in bureaucracy with no worthwhile gain in freedom from Government controls.

  2.  Clause 10 of the draft bill would give the Secretary of State a general power to confiscate capital receipts of local authorities. The Explanatory Memorandum states that this replaces the provision for proportions of housing capital receipts to be reserved to repay debt. This current provision restricting use of capital receipts has been a constant source of resentment among local authorities, which was addressed by the Government's "Capital Receipts Initiative" in 1998. The proposed confiscation provisions are far more radical than the current provision. Even if the argument for some pooling of receipts were accepted in the context of housing policy, it should not be applicable to 100 per cent of housing receipts, nor at all to other receipts.

  3.  Part 2 of the draft bill would provide a wholly unnecessary range of procedures and prescriptions about local authority reserves and budgetary control. No other public bodies are subjected to this degree of legal prescription. It would be absurd to treat all local authorities as if they had less capability in running their finances than colleges and housing associations. There are already legal safeguards, for the appointment of properly qualified officers to take charge of financial administration, for the adoption of proper accounting practices, for internal and external audit, and so forth.

  4.  Part 7 of the draft bill would allow the Secretary of State to adopt a wholly subjective regime for determining each local authority's annual subsidy for council housing. The current regime, like its predecessors for many years, determines subsidy on the basis of a standard set of parameters and calculations for all authorities. The only subjective element has been the decision about the amount of borrowing permitted for each authority, but this has had only a marginal effect on the annual subsidy. Last year, local authorities welcomed the formula-driven Major Repairs Allowance, a capital grant that largely replaced borrowing permissions. The resulting increase in certainty has allowed housing authorities to begin to develop longer-term business plans for their council housing, which should steadily improve economy and efficiency. The proposed subjective basis for determining annual subsidy would not only destroy the improvement achieved in the past year but also bring into the finance of council housing greater confusion and uncertainty than it has seen for many years.

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Prepared 8 July 2002