Localism Bill

L 156

Memorandum submitted by The Chartered Institute of Public Finance & Accountancy (CIPFA) (L 156)

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1 Introduction

The Localism bill contains significant proposals across a range of topics. This response to the Committee’s call for evidence comprises CIPFA’s comments on specific areas that are likely to have the most significant impact on public sector financial management or governance.

2 General Power of Competence – Part 1, Chapter 1

CIPFA fully supports giving local authorities a general power of competence. In some cases uncertain legal powers are a major obstacle to effective partnership working and therefore to the improvement of the quality and value of services. In particular, when organisations develop unusual or innovative solutions to problems it is common for complex questions to arise about whether each of the participating bodies has all of the necessary powers to enter into and play their proposed part in the collaboration. At best, these legal hurdles require significant expense to assess, clarify and resolve; at worst, they may cause important and otherwise viable initiatives to be abandoned. The introduction of a general power of competence will help mitigate this risk and enable councils to think laterally about innovative ways of providing quality public services in a tight fiscal environment.

3 Local Referendums – Part 4, Chapter 1 and Referendums Relating to Council Tax Increases – Part 4, Chapter 2

3.1 CIPFA strongly believes in representative local democracy, and that the election of their representatives to local authorities best serves the interests of local communities. The Institute therefore believes the Bill’s proposals for referendums and more specifically for Council Tax rises will impair the accountability arrangements of local services to local communities.

3.2 The proposals on referendums relating to Council Tax increases as currently set out in the Bill are in danger of diluting local consultation procedures and democratic accountability for local authority budgets. They also are likely to cause confusion for the council taxpayer as it is unclear who is ultimately responsible for increases in Council Tax. Should supporters of an increase in Council Tax make representations to the local authority, their fellow citizens or to the Government?

3.3 CIPFA questions why it is necessary for the Bill to spell out what the Secretary of State believes is a proper increase in Council Tax and for there to be the power to have a referendum only in such cases. There has been significant improvement in recent years in the consultation processes councils undertake in the lead up to setting their budgets and deciding on changes to council services. For instance, it is not impossible to imagine a scenario where a consultation process points to an increase in Council Tax or a change in the way services are run that is subsequently overturned in a referendum after bills have been issued or service re-organisation has taken place. In such a situation, the wasted costs that would ultimately be borne by the council taxpayer are significant: the wasted cost of the initial consultation process, the cost of the referenda and the cost of re-billing.

3.4 CIPFA therefore advocates building the referenda into any consultation process so giving more opportunity for a proper debate about the correct balance between expenditure on services and Council Tax levels and giving councils a clear mandate for their Council Tax setting proposals.

3.5 CIPFA also advocates removing from the Bill the right of the Secretary of State to decide the principles against which a local authority’s relevant basic amount of Council Tax for a financial year is determined to be excessive. Instead, it proposes local authorities should be set their own trigger mechanisms for local referendums relating to Council Tax increases.

4 Community Right to Challenge – Part 4, Chapter 3

4.1 The Bill does not currently include provisions for the local authority to assess a challenge and the resultant expression of interest in running public services in terms of their long-term viability and the potential termination risks and costs. Access criteria and cost structures also need to be taken into account so that a local authority does not end up with too many fixed financial commitments at a time when spending reductions are likely.

4.2 Furthermore, the Government needs to recognise the implications of The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) and the capacity of local authorities to manage several challenges at once since there will be costs associated with considering them.

4.3 It may be that the Government intends that these details will be dealt with using regulations once the Bill has finished its passage. However, some provision in the Bill to deal with these issues, would help give much need clarity to the costs associated with community right to challenge local authorities.

5 Assets of Community Value – Part 4, Chapter 4

Clear limits need to be placed on the arrangements stipulated for adding building and land to the proposed community assets list. If the bill proceeds are currently set out there is a danger that local authorities might be open to legal challenge from private sector owners whose assets have been nominated for inclusion on the list, especially where privately owned land is included. This is clearly undesirable, particularly in the current climate.

6 Allocation and Homelessness – Part 6, Chapter 1

6. 1 CIPFA’s concern with allowing councils to find homes in the private rented sector for families eligible for social housing due to homelessness is that private property owners will want to charge market rents, which will be higher than social housing rents. It is not clear whether councils would be expected to make up the difference in rents and no detail for this is included in the Bill .

6 .2 If so, this will be an additional cost at a time of budget reductions. If not, there may be impacts on housing benefits/local housing allowances. CIPFA believes that a better way to meet housing needs might be that of enabling local authorities and housing associations to meet the need.

7 Social Housing: Tenure Reform – Part 6, Chapter 2

CIPFA understands the reasons for giving social landlords flexibilities in tenancy arrangements , such as in creating fixed-term tenancies. H owever, it believes that the longer-term issues of this proposal needs to be consider ed. Social landlords aim to create and sustain communities - that involves building communities with a long-term commitment to the area and communities that include different social groups. CIPFA believes that t his proposal could lead to estates where the tenants are predominantly transitory people with low incomes and low expectations.

8 Housing Finance – Part 6, Chapter 3

8.1 Replacing the Housing Revenue Account subsidy system with a locally run system that allows councils to keep rental income and use it to maintain their homes amounts to a revolution in council housing finance. This change is one that CIPFA very much welcomes. Indeed, CIPFA has been working with Government Departments on the accounting and technical practicalities of Housing Subsidy Reform for some years.

8.2 The abolition of the housing subsidy system will require changes to the capital financing arrangements for housing. CIPFA is consulting widely on the proposed capital finance arrangements and the responses will inform further CIPFA guidance, which will help implement these changes efficiently.

8.3 The Minister’s announcement following the Bill included a detailed description of how each council's opening financial position will be determined and the process for implementing these reforms in April 2012. CIPFA welcomes, in the context of such a time of austerity and tight finance, the announced levels for management, maintenance and major repairs and the additional funding for disabled adaptations. However, significant problems remain with the lack of capital finance for those authorities, which have yet to achieve Decent Homes standards in their housing stock.

8.4 CIPFA believes there are better alternatives to the Government’s proposed ‘cap’ on council’s housing borrowing – the current system of Prudential Borrowing has shown over the years that councils can and do borrow responsibly. CIPFA does, however, acknowledge the Government’s concerns around the overall deficit.

9 Regulation of Social Housing – Part 6, Chapter 5

9 .1 Appropriate systems of financial governance for handling public money are essential throughout non-departmental public bodies, in order to promote the highest standards of probity and value for money for the taxpayer. This , rather than placing the emphasis on which organisation does what , should a lways be the Government’s focus.

9 .2 With this in mind, CIPFA supports the transfer of functions from the Office for Tenants and Social Landlords ( the Tenant Services Authority) to the Homes and Communities Agency . However, CIPFA would urge the new arrangements with the Homes and Communities Agency to continue the Tenant Services Authority’s important work on tenant empowerment, encouraging tenants to scrutinise the services offered by their landlord.

March 2011