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Session 2002 - 03
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Delegated Legislation Committee Debates

Local Government Finance Special Grant Report No. 113 (Hackney)

Seventh Standing Committee on Delegated Legislation

Wednesday 12 March 2003

[Mr. John Cummings in the Chair]

Local Government Finance Special Grant Report No. 113 (Hackney)

2.30 pm

The Minister for Local Government and the Regions (Mr. Nick Raynsford): I beg to move,

    That the Committee has considered the Local Government Finance (England) Special Grant Report (No. 113) on the Special Grant in Aid of the Revenues of the London Borough of Hackney for 2002–03.

I am pleased that we are meeting under your chairmanship, Mr. Cummings, and I hope that we will have a productive and purposeful debate on the special grant report.

The matter concerns the payment of a special grant of £25 million to the London borough of Hackney, which is the support for Hackney's budget for 2002–03 that we announced in January last year. We are paying the grant now because although Hackney's cash position has meant that it has not yet needed to draw down the money, its year end financial position will show a shortfall of £25 million unless the payment is made before the end of the financial year.

Now, £25 million is a large sum of money and the payment of that amount as a special grant to a single local authority is unusual. The Committee will, rightly, expect a full explanation of the reasons why the grant is necessary and appropriate. Our policy on providing local authorities with additional financial support beyond what is available through mainstream funding programmes is set out in the local government White Paper, ''Strong Local Leadership: Quality Public Services'', which explains that where an authority bears some or all of the responsibility for its own funding problems, the Government will be prepared to help only as a last resort, when every other option has been exhausted.

Where possible, such assistance will, under the present system, take the form of unsupported credit approvals, which allow the authority to borrow but mean that the cost is borne by the authority and its local taxpayers. However, any such borrowing must be affordable: the authority must be able to meet the interest and repayment costs. Therefore we have accepted that there might be extreme cases in which it will be necessary to give assistance in the form of a Government grant. However, as the White Paper, makes clear, authorities should expect any such assistance to be accompanied by the use of other powers of intervention and control, including powers of direction under the best value legislation.

The Committee will already know about Hackney's chequered past, which is characterised by corporate weaknesses, lack of capacity in key areas, poor financial controls, benefits backlogs, endemic overspending, chronic budgetary problems and poor

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services. The area has some of the worst deprivation in the country.

The problems had continued for many years and there was no sign of them coming to an end—to be frank, the council was in a mess. In summer 2000 we asked the Audit Commission to carry out an inspection of the council's corporate governance. Its November 2000 report set out an action plan that required Hackney to get its finances in order by agreeing spending cuts, setting targets for the improvement of payment of housing and council tax benefit and collection of council tax, and providing a realistic forecast of the year end deficit and proposals for a balanced budget in 2001–02. The report also required Hackney to give basic information on performance, monitoring and reporting progress against 10 indicators, and to achieve clear financial accountability, which would include the appointment of senior financial managers for each department and a financial controller at the centre.

Special grant funding of just over £1 million was agreed by Parliament in February 2001 to fund additional support from the Improvement and Development Agency and from framework contractors appointed by the then Department of the Environment, Transport and the Regions to assist Hackney to deliver the key elements in the action plan. However, despite all that, the Audit Commission's corporate governance re-inspection report of June 2001 concluded that Hackney still had very grave problems and was not complying with its statutory duty to deliver best value to its local people. The Audit Commission recommended that the Government use their powers of intervention to address the very serious situation in Hackney.

As a result, in October 2001, we issued Hackney with statutory directions under the best value legislation. Hackney is the only authority in the country in which that measure has been necessary. The directions required Hackney to produce a medium-term budget strategy to restore the authority to a position in which a balanced budget could be achieved.

The directions required Hackney to produce a medium-term budget strategy to restore a balanced budget on the general fund revenue account; at the time it was predicting a substantial deficit. They also required the council to introduce a new system of financial management and control; to recruit appropriate personnel to fill key posts; to produce proposals for an accommodation and property management review; to produce a plan for waste management services in Hackney; to submit proposals for best value reviews of mental health services and services for older people; to implement arrangements for a new education body; and to clear outstanding backlogs on housing and council tax benefit.

Hackney produced a budget strategy, which included various options for savings in both the short and the long term, but it did not achieve the essential objective of restoring long-term financial stability. In effect, a revenue deficit remained, even after several years. A detailed examination of Hackney's finances, which involved Hackney, the

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Government and Neil Newton, the independent adviser who had been brought in by the Government, identified further scope for savings, but most would have taken longer than 12 months to deliver and it was clear that there would still be a significant budget gap in 2002–03. That gap could not be bridged without further cuts, which would have had an unacceptable impact on services to local people and made it impossible for Hackney to take the necessary action to improve services.

Because of that, we reluctantly concluded that the Government should provide a one-off grant of £25 million. In making that wholly exceptional support available, we wanted to be sure that it would be used as a springboard for improvement and not simply as an excuse to put off difficult decisions and to maintain the status quo. Hackney was required to meet a number of specific conditions: to introduce new systems to provide reliable financial monitoring and control; to deliver its proposed programme of short-term savings; to produce a revised medium-term financial strategy to restore long-term financial stability; and to set and to live within a realistic balanced budget for 2002–03. The budget had to be delivered without for the need for in-year emergency measures, which had destabilised services in previous years.

Hackney was also required to maintain progress on council tax collection rates with a target of at least 77 per cent. in 2002–03 and 80 per cent. in 2003–04.

Mr. Eric Pickles (Brentwood and Ongar): This is an important matter. When talking about the conditions, is the Minister referring specifically to the £25 million? If he is, why is that not reflected in annexe C, which is much more general in its terms?

Mr. Raynsford: The conditions were set out in specific directions, which were served on the authority in October 2001. The special grant came in addition to the directions, but it was parallel to them. That is why the directions are not specifically referred to in annexe C.

Hackney was required to maintain progress on council tax collection and to continue making improvements in the administration of housing and council tax benefits. The realism of the plans and proposals had to be checked and approved by Neil Newton, who had been responsible for advising on progress in delivering the conditions.

The then council leader, Jules Pipe, who is now the directly elected mayor of Hackney, with the support of the managing director, Max Caller, recognised the scale and the extent of the problems and responded to the tough agenda set by the directions and the conditions attached to the £25 million grant. As a result, there has been some welcome progress.

The council set a realistic budget and, as the financial year draws to a close, it is clear that it will remain within it without resort to the sort of one-off emergency measures that proved so damaging and destructive in previous years. Better still, stabilising the financial position has allowed the authority to focus more of its efforts on improving its control systems and services. Broadly in line with projections for the

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2002–03 budget, savings of about £11 million will be delivered. The director of finance, Anna Klonowski, has put in place stronger financial controls to provide a stable financial base for 2003–04 and beyond.

There have also been significant improvements in council tax collection, albeit from an exceptionally low base. A major factor in the council's abysmal financial position was the fact that in 2000–01, it had presumed a council tax collection rate of 96 per cent., when the best that had been achieved in preceding years was a little over 70 per cent. Actual collection outturn that year was 67 per cent. Those figures give a measure of how dire the situation was. The estimated outturn for 2002–03 is expected to be more than 82 per cent. against the target in our conditions of 77 per cent. That is still low in comparison with other authorities, but significantly better than previously.

The housing and council tax benefit backlog, which stood at 120,000 pieces of information at the time we issued the directions, has been cleared. Processing time for new claims in 2001–02 was 225 days—225 days to clear a new housing benefit claim. By the end of January this year it was 152 days, which, although not satisfactory, is a move in the right direction. Importantly, it is expected to decrease, with the target for next year being 80 days. It is moving in the right direction, albeit from an appallingly low base.

Hackney council has come a long way from the dreadful position in summer 2001, but it has a lot further to travel. It was rated ''poor''—the lowest category—by the Audit Commission in the comprehensive performance assessment published last December. As with 14 other failing authorities, the Government have appointed a lead official to co-ordinate central Government activity with Hackney council, to understand and analyse the council's performance and to advise me on developments and the prospects for improvement. Each of the 15 councils, including Hackney, must prepare a recovery plan, which is route map to improved service for the public. They are due to be delivered to me by 10 April.

The recovery plan must include specific actions, targets and milestones which the council commits itself to achieving and which are then monitored by the lead official on the Government's behalf. The Government reserve the right to insist on amendments to a recovery plan when it is inadequate. In addition, the Government retain the option of using their statutory powers of intervention when a council fails to respond adequately to secure recovery. That might include failure to deliver an adequate recovery plan, or failure to remain within the timetable it drew up for itself within the plan. That possibility hangs over Hackney just as much as any of the other councils if delivery and rate of recovery does not come up to scratch.

Hackney's recovery plan will be monitored by an interdepartmental team of officials who will report regularly to Ministers on progress in delivering the improvements set out in the plan. That will enable Ministers to keep a close watch on Hackney and other authorities with which the Department is involved and ensure that it is making the necessary progress.

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By choice, our engagement with those councils is primarily a co-operative and supportive one. I hope that I do not need to explain the advantages of such an approach in building recovery that is embraced by the councils and will prove to be long lasting. It is by no means an easy option. The councils have failed to deliver in the past and they are now being required to deliver—and to deliver quickly—in their performance and service to the public. That approach applies in exactly the same way to Hackney as to the others. The council can be under no illusion: we mean business and its present level of performance is still unacceptable in many ways.

A common feature of poorly performing authorities is difficult relationships between the local political parties and between councillors and officers; that is sometimes aggravated by regular changes of political control. Until last May, much of that was true of Hackney. However, for the first time in many years, Hackney now has a stable political base. I suspect that it was partly a reaction to their experience of continuous failure by the council under different political regimes during previous years that the people of Hackney voted in a referendum in May 2002 to have a directly elected mayor.


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Prepared 12 March 2003