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Government Response to the Communities and Local Government Committee's follow-up questions on the Spring Supplementary Estimates 2007/08
1. The Committee wrote to the Department on the 19 March setting out a number of questions relating to the Department's Spring Supplementary Estimates and accompanying explanatory memorandum. The Government's response to these questions is set out below.
In "Section C: Impact on PSA Targets", there is a table which sets out the various changes in terms of their allocation to different PSAs or classifies them as "unallocated". The total figures at the end of this table do not tie-in to the figures for changes in DEL (either Resource or total DEL). Whilst it is questionable as to whether the guidance requires these figures to tie-in to the Resource or DEL totals, the lack of read-across makes it confusing for the reader of the Memorandum. The Committee therefore recommends that the Section C summary table ties in with either the total resource changes as per the Supplementary Estimate, or the total DEL changes as set out in Tables 3 and 4 of Section D.
2. We accept the table might be made clearer, although the information is consistent with figures elsewhere in the memorandum and the Supplementary Estimate. The row (in bold, third from the bottom of Table 2) headed "Total Main DEL change (before depreciation deducted)" gives an overall net decrease in DEL of £8,723,000. This is the same as the sum of:
· The resource DEL increase of £16,277,000; and · The capital DEL decrease of £25,000,000
in table 3; and (rounded figures), the sum of:
· the Resource "Change announced with spring supplementary estimate" "total DEL" of £16 million; and · the Capital "Change announced with spring supplementary estimate" "total DEL" of minus £25 million
in table 4.
3. There are three further points worth noting:
· The "total change (excluding administration costs)" (the final rows in table 2) of -£17,100,000 is arrived at by deducting the row headed "less administration costs" from the row above (ie -£8,723,000 total DEL, excluding depreciation; minus £8,377,000). This is the amount within the overall net decrease, which relates to changes in administration costs. On reflection, it might have been helpful to show this deduction with negative signage as well as describing it as "less" and will bear this in mind for future memoranda.
· Tables 3 and 4 do not currently give a total DEL change figure for the Spring Supplementary Estimates. We will include this in future.
· Total DEL is often quoted as "Resource DEL + Capital DEL - depreciation" (part of resource DEL). For the Committee's information, the following table summarises the changes in DEL, and cross-references to the figures given in the memorandum tables:
· With the advent of the new PSA framework for the CSR period, we will be revising this section for 2008-09 onwards, presenting the information differently and in a way that reflects the more cross-cutting nature of the new PSAs. We will continue to welcome any comments which the Committee has on the form or content of this section in the future.
There was a £9.1 million increase in central administration from EYF to allow for settlement of the Thurmaston Co-op planning case. This was originally included in the 2007-08 WSE as a Contingent Liability estimated as within the range of £5.2 million to £26 million. The Committee requests further information on this case, including the background to it, the possible outcomes thereof, whether the £9.1 million amount is the final assessment of the bill, whether the negotiation of the settlement figure is complete, and whether similar cases are likely to arise in the future.
4. The Thurmaston Co-op planning case refers to an Ombudsman investigation into an error made by our predecessor department in 1996 in its handling of a planning case relating to a retail development in the town of Thurmaston, Leicestershire. The Ombudsman, while not challenging the validity of the original planning decision, did criticise the Department's actions in this specific case due to its omission of a restriction on the size of, and range of goods to be sold in, the proposed retail development. This ultimately allowed the development of a larger than originally intended rival superstore opposite the Cooperative Society store, which ultimately closed in 2004.
5. When the Ombudsman issued her report in December 2007 into this case, she cited the Department's omission as a contributing factor in the store's closure. Our £9.1million estimate in the memorandum was produced prior to the publication of the Ombudsman's report, which sets the guidelines for compensation to be based on rather than a specific final sum. Currently the Cooperative Society is collating the necessary documentation for submission to the Department upon which a validated final settlement will be based. Until this has been received by the department it is difficult to confirm an exact figure, and consequently the final settlement may be in excess of the original estimated figure of £9.1million. Once this documentation is received, the Department will be in a position to negotiate a final settlement. Given the one-off nature of the case, and that 12 years have passed without repetition, we think similar cases are unlikely to arise in the future.
The largest change in the Spring Supplementary Estimate was that of a £734 million increase in non-budget spending. The Memorandum states that this was required to cover the anticipated increase in payments to the Public Works Loan Board (PWLB) for expected overhanging debt in relation to housing stock transfers from local authorities to registered social landlords. The increase is primarily related to an expected transfer of housing stock in Liverpool. This increase is classified as non-budget and outside public expenditure and the Departmental Expenditure Limit The Committee is concerned that this summary does not provide enough context or explanation of the reasons for the increase. The Committee therefore requests an explanation of what overhanging debt is, why there needs to be an increase in payments to the PWLB, and why this is not related to the already existing housing programmes which come within the main purview of the Department. On the technical side, it would help the Committee if the Department could explain why the payments are classified within non-budget spending and outside Departmental Expenditure Limits.
6. Overhanging Debt arises where the capital receipt an authority receives from the sale of its housing and other Housing Revenue Account (HRA) assets is less than the assumed HRA debt attributed to the housing.
7. After an authority has transferred all its housing, there is no income other than HRA subsidy to meet loan charges that fall to the HRA. Consequently, when the remaining debt is transferred or removed in some way the authority would effectively be left running a landlord account, and holding debt, without any rental income from housing, which would clearly be inappropriate.
8. Given that the liability for housing debt lies with central government, through the HRA subsidy system, the established arrangement agreed with Treasury enables the Department to make a one off payment to the Public Works Loans Board (PWLB) to clear the remaining debt attributable to a Local Authority's HRA, both in respect of principal amount and early debt redemption premium. The Local Authority pays the accrued interest. Payment usually takes place three days after transfer of the housing stock.
9. It is often difficult to predict with any degree of certainty when particular payments are going through, on a month by month basis: they are wholly dependent on the transfer transaction being completed. It is also difficult to predict 6-18 months in advance what OHD payments might need to be made in any one year as they are first of all dependent on a transfer proposal proceeding successfully through a tenant ballot and then the local authority and the Registered Social Landlord making good progress to complete the transaction. The expectation is that these are completed within 12 months of the ballot date but this is not always the case. There is an annual voted provision of £616m, which is adjusted as each year unfolds.
10. It became clear during the latter half of 2007/08 that Liverpool CC might be in a position to complete its transfer of housing stock during that financial year. They had loans with the PWLB of just over £560m which when added to the early debt redemption premia of around £174m brought the amount CLG would have to pay to around £735m. We therefore made a request in the Spring Supplementaries for an increase from to cover Liverpool's OHD transfer payment to the PWLB.
11. Liverpool CC transferred its remaining housing stock to Liverpool Mutual Homes on 31 March, and the Department made a payment to the PWLB on 3 April 2008 of £735m. Liverpool CC paid accrued interest of £8.9m to complete the debt transaction.
12. Expenditure within the Overhanging Debt programme varies significantly each year. Actual spend for 2006-07 was £605.24m, the final figure for 2007-08 is now known to be £1.2bn. During 2007/08, the Department made twenty-one other Overhanging Debt payments totalling £477. It was also anticipated that there would be a further transfer, where the payment would have been in the region of £100m. This is not now expected to complete until June 2008.
13. The repayment of debt can not be seen as spending in the same way as capital or current expenditure which is managed within departmental budgetary controls. It is not new expenditure on goods and services, but is the transaction that finances this expenditure. If a body has more income than expenditure in a given year it can repay debt.
14. The Office of National Statistics classifies debt repayment as a financial transaction for the purposes of the national accounts. The fiscal policy is set with reference to national accounts aggregates, so Treasury use the ONS classification when deciding the budgeting treatment. Financial transactions, such as repaying debt, are typically outside departments spending controls as they do not alter the fiscal position. Therefore Treasury concluded that these payments to the Public Works Loan Board should be non-budget. It is only financial transactions which do alter the fiscal position that are typically included in the budgeting framework for departmental spending controls.
15. Since clearing Local Authorities overhanging debt represents a transfer of resources requiring cash payments they are, of course, subject to appropriate controls and require Parliament's approval.
Communities and Local Government April 2008 |