Examination of Witnesses (Questions 120-139)
MR RAY
SHOSTAK, MR
ANDREW LEWIS,
MS LINDSAY
BELL, MR
ANDREW ALLBERRY
AND MR
ROBERT DAVIES
27 APRIL 2004
Q120 Mr Sanders: What is the difference
between the two?
Ms Bell: The passported money
is still part of the unhypothecated pot, it is just government
has made it clear to local authorities what it wants to see for
the stability and certainty it needs.
Mr Sanders: So where does the ring-fenced
money come from?
Q121 Sir Paul Beresford: When is a fence
not a fence? When it is called passporting.
Ms Bell: It is different and indeed
not all local authorities—
Q122 Mr Sanders: Passported comes from
the hypothecated pot; where does the ring-fenced money come from
if not the same pot?
Mr Allberry: Separately!
Q123 Chairman: Let's be clear. Ring-fenced
100% actually gets spent on what it is supposed to be spent on;
is that right or is there an underspend?
Ms Bell: There could be an underspend
with ring-fenced.
Q124 Chairman: So ring-fencing basically
is 100%. In passporting how much gets spent?
Ms Bell: Sorry, I have not got
the figures.
Mr Davies: You can look at passporting
targets for schools spending in two ways, the overall effect or
the individual effect. Overall schools spending goes up by almost
exactly the increase in FSS for schools for England as a whole.
Within that some authorities increase their spending by more and
others by less.
Q125 Chairman: So passporting has virtually
the same effect; 100% of the money intended gets spent, except
with ring-fencing the authority is guaranteed that the money goes
to the authority. With passporting there are swings and roundabouts
and you get some local authorities who may spend a little bit
more and others a little bit less.
Mr Davies: That is certainly true.
You have no choice what you spend a ring-fenced grant on.
Q126 Chairman: And in passporting you
have very little choice?
Mr Davies: There is a choice.
Q127 Chairman: I am trying to get at
the degree of choice by asking you what percentage. We agree with
ring-fencing that 100% gets passed on but with passporting you
cannot really tell me how much gets passed on?
Mr Davies: I can tell you in aggregate
how much gets passed on, it is almost exactly the same as the
FSS increase. Most authorities chose to pass on exactly 100 per
cent, others more, others less.
Mr Sanders: The ODPM says in its written
evidence to the Committee that the 2001 White Paper argued that
the balance of control was a more serious and urgent issue than
the balance of funding. Is this still the Government's view? If
so, what problems does it associate with the present balance of
control?
Q128 Sir Paul Beresford: Perhaps the
Treasury could start because you mentioned you had a paper on
targeting which I think came out at the same time as the Budget.
Mr Shostak: The balance of control
is the direction of travel whereby we are looking to empower local
authorities—
Q129 Sir Paul Beresford: Empower or impound?
Mr Shostak: —to actually
look at more innovative and imaginative ways in terms of meeting
their and our overall targets.
Q130 Sir Paul Beresford: All the targets
are your targets; they are not local authority targets.
Mr Shostak: The direction of travel
apropos the previous question is the same in looking to reduce
the overall global amount that is being ring-fenced and it is
expected that we will meet the target of that being less than
ten per cent after next year and so it is looking to increase
the balance of control within local authorities to be able to
actually use their funds as they deem appropriate in terms of
meeting their targets.
Q131 Mr Sanders: It was the Audit Commission's
view that passporting is one of the factors in the 12.9% council
tax rise in the last financial year. Is that your view?
Mr Shostak: Last year had a particular
set of circumstances associated with it in terms of a range of
different changes in respect of local authority expenditure, not
least of which were within the education sector whereby there
is a range of changes in terms of some of the—
Q132 Chairman: —It is a simple
question; did the Audit Commission get it right or wrong?
Mr Shostak: It is not for me to
comment on that conclusion, that is the judgment that they reached.
Q133 Chairman: So do you agree or disagree
with the Audit Commission?
Mr Shostak: I am not sure I can
add much more to it.
Q134 Mr Brady: If the total percentage
of local government expenditure which is ring-fenced is going
to come down to 10% could you give us an indication of what the
percentage would be of those funds which are ring-fenced and passported
added together?
Mr Davies: It would be over 50%
if you add all schools spending to the ring-fenced amount.
Q135 Mr Brady: Just over 50% or?
Mr Davies: I do not know exactly.
Ms Bell: There is a straight answer
to that question; we just do not know it.
Chairman: Perhaps you could let us have
a note on that. Bill O'Brien?
Q136 Mr O'Brien: The ODPM has just said
that gearing is a spur to encourage councils to look at ways of
driving down cost more than raising taxes but this does not appear
to be the case because research done by the Balance of Funding
Review shows that highly geared authorities do not perform better
than others. Why does gearing not work as an incentive to drive
down local taxes as suggested by the Office of the Deputy Prime
Minister?
Mr Allberry: What the research
showed, I think, was that you could not prove a correlation between
different rates of gearing and different rates of efficiency.
I do not think the research disproved that overall gearing does
not provide a spur to efficiency in as much as more efficient
councils can have more money to spend from what they raise from
council tax on their services.
Q137 Mr O'Brien: But the councils that
have to provide for large deprived areas do find that gearing
is an imposition, so can you address that particular point?
Mr Allberry: It is certainly true
that gearing tends to be much higher in those areas. All I was
saying was that the research did not prove that the degree of
efficiency, if any, which that particular level of gearing produced
varied from a more lowly geared area.
Q138 Chairman: So fourth gear does not
move the thing along any faster than first gear?
Mr Allberry: That is what the
research suggested.
Chris Mole: What relationship is there
between the total level of spending by an authority and efficiency?
Maybe it just provides less services.
Q139 Chairman: Come on, tell us why gearing
is a good thing; make it quite simple.
Mr Allberry: Simply because the
local authority picks up the political cost, if you like, of putting
up council taxes to increase expenditure and if that increased
expenditure is as a result of relative inefficiency—
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