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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