Examination of Witnesses (Questions 80-99)
MR RAY
SHOSTAK, MR
ANDREW LEWIS,
MS LINDSAY
BELL, MR
ANDREW ALLBERRY
AND MR
ROBERT DAVIES
27 APRIL 2004
Q80 Mr Betts: From the evidence the ODPM
say: "The Government provides grant to supplement the money
available to local authorities from council tax and redistributed
business rates." Given that central government controls absolutely
the level of business rates is it not a reality that council tax
supplements the grant provided local authorities by the government.
Have you not got it the wrong way round in the way you look at
it?
Ms Bell: You mean that the primary
source of income is government and the council tax is supplementing
that?
Q81 Mr Betts: Yes?
Ms Bell: In terms of the numerical
balance that is clearly the case.
Q82 Mr Betts: And that effectively has
a particularly important role then in the way that central government
controls and influences local government expenditure? Central
government is very much in the driving seat, is it not, given
the balance of where the funding comes from?
Ms Bell: There is a difference
between the balance of control and the balance of funding and
I think it just might be worth going back to what the government
said in the 2001 White Paper. They said that the local government
finance system needs to balance the delivery of national priorities
and targets with local financial freedom and responsibility and
even in the areas where local government is primarily an agent
of central government in delivery of particular national priorities
the government recognises that local government cannot do that
properly if they are over-constrained by government. The Government
does recognise that it must not over-control local government
but you are right in terms of the numerical balance of where the
money is coming from.
Q83 Mr Betts: That is absolutely key,
is it not, to the whole issue of control? It is semantics to say
we do not want to control too much. You control 75% of what local
government gets and therefore you control them.
Ms Bell: I do not think that is
right actually. If you give the money unhypothecated, as most
of their money is, then the decisions on spending are still for
local government and indeed the level at which they set their
budgets is still a matter for local government.
Q84 Sir Paul Beresford: Much of local
government would contend that not only have you got control on
the finance you have also got control on how they spend it and
enormous control on checking on how they spend it. One small district
authority said that they have 238 targets and 85 strategic strategies
or plans at your behest, with the funding consequences or the
lack of funding consequences which mean they have to find the
funds for that through the council tax?
Ms Bell: I am sorry, I cannot
second-guess the figures you have quoted but there is no dispute
that the Government realises that it has to simplify the regimes
under which local government operates and indeed there are various
initiatives on efficiency that we are working with local government
to try and do that.
Sir Paul Beresford: You have been saying
that for years. Every time we call a minister the first thing
a minister says is we are going to solve that problem, we are
going to have another target.
Q85 Chairman: Pulling faces is quite
useful from your point of view but not very good for getting it
on the record.
Ms Bell: I realise that, I was
not deliberately pulling faces. I cannot answer for the particular
targets that the government are choosing to set. I cannot say
any of them at the moment are not needed but the general principle
of needing to simplify the grant regime is one that the Government
accepts.
Q86 Mr Betts: In case the Treasury think
that they are here for the enjoyable experience, are the Treasury
worried about the overall amount of taxation that local government
raises? If there is more freedom for local government to increase
its take of tax, would that be a problem in terms of the overall
scheme of things and control of economic policy?
Mr Shostak: Picking up on the
points that have been made there, at the time of the Budget the
Treasury published a review which was jointly carried out by the
PMDU and the Treasury on devolved decision-making. What that was
intended to do was to pick up some of the concerns that have been
raised in respect of the target regime and, indeed, as part of
the Balance of Funding Review we are picking up some of the concerns
in respect of your last question. Inevitably, in terms of the
devolved decision-making review we recognise there have been within
the PSA framework in terms of our performance management regime
a number of both national and indeed, as you were describing in
terms of your district council, a number of developments in respect
of the way in which individual authorities monitor their own performance
and indeed work on their own performance supported by the national
structure and the terms of the performance management regime.
We have seen a reduction in national targets in terms of PSAs
and that has, and will continue I suspect, to lead to a reduction
in the number of targets at local level. In terms of your direct
question, the Balance of Funding Review is looking at a range
of issues and in terms of that whole issue of balance and will
be reporting during the course of the summer.
Q87 Chairman: As a matter of principle
how much freedom could the Treasury let local government have?
You must have some views on that principle.
Mr Lewis: The remit of the Balance
of Funding Review is deliberately open and the Government is encouraging
a wide-ranging debate on many of these issues. An element of the
remit, of course, is to ensure coherence between what we do on
balance of funding and the overall macro-economic framework in
which tax decisions take place as set out by the Chancellor in
the fiscal rules. Provided that framework is a clear element of
whatever solution is ultimately recommended from the Balance of
Funding Review, really these issues are entirely appropriate to
be considered in that context. It is important to remember that
macroeconomic context but that is built into the remit of the
Balance of Funding Review and we are playing an important part
in that process.
Q88 Mr Betts: That is either a very deep
answer or a statement of the blindingly obvious that the Treasury
are concerned about overall issues of finance. In terms of the
impact of local government being able to raise more of its own
revenue through local taxation are there likely to be any serious
concerns from the Treasury about the impact on overall macroeconomic
policy from allowing local government to raise 50% of its own
funding locally rather than 25% as at present?
Mr Lewis: There are issues to
be addressed and they are being addressed in the Balance of Funding
Review.
Q89 Mr Betts: Can you tell us what the
issues are then and how the Treasury is addressing them?
Ms Bell: Can I just come in.
Q90 Mr Betts: It was for the Treasury
first. Can we let the Treasury have a go at it and then if you
want to come in.
Mr Lewis: As I say, it is an intricate
part of the remit of the Balance of Funding Review to consider.
Q91 Mr Betts: I know what the remit of
the Balance of Funding Review is. What is your view that you are
submitting to them?
Mr Lewis: We are engaged in those
discussions on the basis of the remit.
Q92 Mr Betts: With respect, that is not
an answer; what is the Treasury view?
Mr Lewis: The Government has taken
a number of steps recently, for example the new prudential borrowing
regime for local authorities which is a new mechanism to allow
decisions that take place at local level to be given greater freedom
and flexibility within the overall context of the macroeconomic
policy framework set by the Chancellor and that is an example
of the need to explore alternative means of meeting those ends.
Q93 Mr Betts: And if in any proposal
the amount of revenue that local government raises for itself
should be increased from 25% to 50%, say, does the Treasury have
any concerns about the impact of such a proposal in terms of macroeconomic
policy; would it want to control it in any way?
Mr Lewis: I do not think it is
an issue of control, it is a matter of identifying issues and
discussing them through the framework of the Balance of Funding
Review.
Q94 Mr Betts: So the Treasury has no
view?
Mr Lewis: The Treasury view is
these issues are important, that is why they are being discussed.
Q95 Chairman: There is a central issue,
is there not, of how far local government expenditure has to be
part of the Treasury macroeconomic view. As far as the Treasury
is concerned, if a local authority transfers its housing to a
transfer company then that moves it out of the public sector and
into the private sector and the Treasury no longer has a view
as to how much money they should borrow. How tight is that the
view that local government, if it does more than a certain amount,
is going to upset the general macroeconomic situation?
Mr Lewis: I cannot really add
much to what I have said. I turn to colleagues for information
about the overall fiscal framework for local authorities, but
I think in the context of the discussions on the Balance of Funding
Review, as I have said, I think these discussions need to understand
the issues that arise from the need to ensure prudential limits
on borrowing and they need do that within the fiscal framework
for public expenditure.
Q96 Chairman: Are there limits then as
far as local authorities are concerned in general in terms of
the Treasury?
Mr Lewis: I think the local government
finance framework is a matter for ODPM.
Ms Bell: Can I just pick that
up.
Q97 Chairman: Yes, you can help out.
Ms Bell: I was going to pick up
a couple of specific points that struck me might be relevant to
what you were asking. One is—and Nick Raynsford has already
said this—that certainly in looking at any options for new
taxation or changing the balance you would genuinely have to look
at safeguards both for macroeconomic purposes and for individual
residents so you would have to look at safeguards as well as just
looking at what additional freedoms you had. The second thing
is we certainly are aware that you would have to look at equalisation
differently but it would still remain an important issue. So if
you had areas that could raise a lot more money but did not have
the same needs, you would still have to have some intervention
mechanism to look at that so it would never be really simple I
would say.
Mr Betts: It is an interesting answer
but I am not sure it is an answer to the question I asked.
Q98 Mr Clelland: If and when any new
taxes or charges are brought into change the balance of funding
and weight it more in favour of local authorities, what account
would be taken of that in calculating central government grant?
Will every pound raised through the new system result in a pound
reduced in government grant?
Ms Bell: I genuinely could not
answer that. I think there would be options year-on-year as to
how the government in certain spending reviews take decisions
on what spending is. I do not know, you could do it either way.
Q99 Mr Clelland: It has not been discussed
at all in the course of the—
Ms Bell: In terms of balance of
funding, the balance of funding is what it says. You would assume
that the same amount of money was the take.
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