Third Report Contents

Public Bodies Order

Draft Public Bodies (Abolition of Public Works Loan Commissioners) Order 2019

Date laid: 14 October 2019

Introduction

1.The draft Public Bodies (Abolition of Public Works Loan Commissioners) Order 2019 (“the draft Order”) was laid before Parliament by HM Treasury (HMT) on 14 October 2019 under section 11(1) of the Public Bodies Act 2011 (“the 2011 Act”). The Order was laid with an Explanatory Document (ED). The Public Bodies Act 2011 gives Ministers powers to abolish or merge public bodies, modify their constitutional or funding arrangements or modify or transfer functions of public bodies through Public Bodies Orders. The draft Order proposes to abolish the Public Works Loan Commissioners (the “Commissioners”).

Context

2.The Public Works Loan Board (PWLB) is a statutory body that issues loans to local authorities and other specified bodies, operating within a policy framework set by HMT. Formally, the PWLB consists of up to 12 Commissioners who are appointed for four years and, by law, are unpaid. The Commissioners originated in 1793 and were established on a permanent statutory basis in 1817. There are six Commissioners in post at present.

3.HMT explains that the Commissioners were originally responsible for approving loan applications, including assessing the appropriateness of any security, and collecting the repayments. In practice, their functions and day-to-day operations have been delegated to the Commissioners’ Secretary in the UK Debt Management Office (DMO), an executive agency of HMT. The DMO also manages the National Loans Fund (NLF), which finances loans from the Commissioners. According to HMT, loans from the Commissioners are the main source of debt financing for local authorities. They are mainly used for capital projects and in 2018–19 net lending by the Commissioners to local authorities was £7.4 billion.

4.HMT says that, since 2004, local authorities have been responsible for making their own borrowing decisions without government consent under the prudential regime1 which secures any borrowing automatically against their revenues.

Overview of the proposal and rationale for reform

5.The draft Order proposes to abolish the Commissioners and transfer their functions formally to HMT. The DMO will continue to carry out their functions within HMT and the PWLB will continue to exist as the statutory lending body. The Commissioners’ current interests in land are to be transferred to the Public Works Loan Secretary, a new statutory office to be established by this draft Order, to hold on behalf of HMT. All other rights, liabilities and property are to be transferred to HMT. In effect, the new Public Works Loan Secretary will continue the functions and retain the powers of the previous Commissioner’s Secretary.

6.HMT explains that the transfer of the Commissioners’ functions to HMT will formalise the arrangements which already exist in practice between HMT and the DMO, without impacting on the financing arrangements for local authorities, or the amounts they may borrow. HMT says that apart from meeting once a year to review an annual report and accounts that are prepared by the DMO, the Commissioners have no role in the operational processes or the day-to-day management of local authority loans, such as collecting due repayments. While the Commissioners currently have the legal power to block or approve individual loans, HMT says that they have not used this power or their discretion in lending decisions since the introduction of the prudential regime in 2004. HMT describes their role as “quasi ceremonial” and says that while the role of the Commissioners is no longer required in practice, their lending functions are still needed and transferring them formally to HMT will “align policy and operational responsibilities with current practice”. According to HMT, the draft Order would resolve legal ambiguities in the governance framework.

Role of the Secondary Legislation Scrutiny Committee

7.The Committee’s role, as set out in its Terms of Reference, is to “report on draft orders and documents laid before Parliament under section 11(1) of the 2011 Act in accordance with the procedures set out in sections 11(5) and (6)”.2 A key aspect of this role is the Committee’s power to trigger the enhanced affirmative procedure, which would require the Government to have regard to any recommendations made by the Committee during a
60-day period from the date of laying. The Committee may also take oral or written evidence, to aid its consideration of the orders.

Statutory Consultation

8.The Government conducted a public consultation on the proposed changes in accordance with section 10 of the 2011 Act. The consultation ran from 12 May 2016 to 3 August 2016 and received 35 responses, including 30 responses from local authorities, parish councils and local authority associations, two responses from private sector bodies, two from members of the public and one from a Commissioner.

9.As set out by HMT in the ED and in its consultation response,3 most responses to the consultation supported the proposed abolition of the Commissioners and the transfer of their functions to HMT. A number of responses highlighted the need for some form of independent oversight of local authority loans. HMT says that, in practice, the Commissioners have not been carrying out this oversight function since decisions on borrowing have been devolved to local authorities under the prudential regime. One local authority raised the possibility of transferring the Commissioner’s functions to the Department for Communities and Local Government (DCLG, now Ministry of Housing, Communities and Local Government—MHCLG) as the lead department for local government finance. HMT says that the purpose of the proposed changes is to “provide a more streamlined, up to date governance arrangement and ensure that Ministers and Accounting Officers are properly accountable to Parliament”, and that transferring the functions to DCLG/MHCLG or using other organisations for oversight would “add another layer of bureaucracy”, as responsibility for the NLF as the source of local authority loans will need to remain with HMT. Most respondents to the consultation expected the proposed changes to have a negligible impact on borrowers. HMT emphasises that “the proposed governance changes will not affect existing local loans, the Government’s policy on lending to local authorities, or the process by which the loan applications or repayments are handled” and that interest rate policy will also remain the responsibility of HMT.

10.Given that the consultation was completed in summer 2016, we asked HMT why the draft Order had not been taken forward earlier. HMT told us that the intention was to lay the Order in 2016 but that, due to pressures on Parliamentary time following the EU referendum, it was deprioritised. HMT added that the draft Order is now a priority as the power to use the 2011 Act to abolish the Commissioners will run out on 12 April 2020 and the current terms for most of the Commissioners will end in 2021. The Committee notes the significant three-year delay in bringing forward the draft Order.

Other Tests in the Public Bodies Act 2011: assessment of the proposals

11.This Order is proposed under sections 1(1), and (2), 6(1), (2)(a) and (5), 23(1)(a), (2)(b), and (6) and 35(2) of the 2011 Act which, in effect, give Ministers powers to abolish a public body and transfer its functions and property, rights and liabilities to another public body.

12.Ministers may only make an order under sections 1 to 5 of the 2011 Act if they consider that the order serves the purpose of improving the exercise of public functions, having regard to (a) efficiency, (b) effectiveness, (c) economy, and (d) securing appropriate accountability to Ministers (section 8 of the 2011 Act). HMT addresses these issues in sections 8 and 9 of the ED.

Efficiency

13.HMT explains that efficiencies will be realised by formalising the existing arrangements between HMT and the DMO, and ensuring the new governance reflects those arrangements. HMT emphasises that under the new arrangements there will no longer be a requirement to hold an annual meeting with, and appoint, Commissioners.

Effectiveness

14.HMT sets out in the ED that effectiveness will be improved following the abolition of the Commissioners and the transfer of their functions to the DMO, as Ministers will be able to influence delivery and the implementation of policies more directly. The Committee notes that as the Commissioners only have a “quasi ceremonial” role in practice, the impact of their abolition on the effectiveness of the Public Works Loan scheme in practice is likely to be marginal.

Economy

15.HMT expects to achieve small economies by removing the requirement to appoint Commissioners, explaining that “vacancies typically attract only a small field of candidates and appointing 12 Commissioners involves a drawn-out process” with approval required from HMT’s Permanent Secretary, the Cabinet Secretary, the Prime Minister and the Chancellor before appointments are made by Royal Warrant. We asked HMT about the cost savings that are expected. HMT told us that:

“[T]he role of Commissioners has become simply a formal requirement. Employing civil service assets in the long recruitment process for Commissioners … therefore is not a good use of public resources, however we have not carried out a specific costing of this activity.”

16.The Committee notes that while it would have been helpful for HMT to provide Parliament with an estimate of the cost savings, these savings are expected to be small.

Accountability

17.HMT emphasises that accountability will improve following the transfer of functions to the DMO: Ministers will be accountable directly to Parliament as there will no longer be a separation between Ministers and the operation of the Commissioners in providing loans to local authorities. HMT says that under the new arrangements there will be a statutory requirement to present a report annually (with accounts annexed) to Parliament on local authority loans and to provide a copy to the Comptroller and Auditor General, so that it may present a further audited report to Parliament.

Safeguards

18.The ED states that the conditions in section 8(2) of the 2011 Act are satisfied in respect of the abolition of the Commissioners as their functions will be transferred to HMT. According to HMT, this change will not by itself alter the financing arrangements for local authorities, or how much they are able to borrow; it will only formalise the existing arrangements between HMT and the DMO.

19.HMT adds that these changes will not alter or remove any necessary protection or affect the exercise of any legal rights or freedoms. The abolition of the Commissioners will remove the requirement to have Commissioners and place responsibility for local loans with HMT, which will continue to provide reports and accounts to Parliament, with Ministers being directly accountable for any local loans made. HMT emphasises that the proposed changes will not impact on current financing arrangements for local authorities, or the amounts they may borrow.

Conclusion

20.While the practical effect of the abolition of the Commissioners and the transfer of their functions to the DMO is likely to be limited, given the Commissioners’ current “quasi ceremonial” role, HMT has demonstrated that the proposals will streamline some aspects of the provision of Public Works Loans to local authorities by clarifying the governance framework and improve accountability by making Ministers directly accountable to Parliament for these loans. The Committee notes that, while HMT has not provided any financial data, the economies that are expected to be realised by this draft Order are small. The Committee concludes that the Government have demonstrated that the draft Order serves the purpose of improving the exercise of public functions and is in compliance with the tests set out in the 2011 Act. We are therefore content to clear the draft Order within the 40-day affirmative procedure.


1 According to HMT, local authorities may borrow without government consent under the Local Government Act 2003 and the Capital Finance Regulations 2003. They are required to have regard to the “Prudential Code for Capital Finance in Local Authorities” published by the Chartered Institute of Public Finance and Accountancy.

3 HM Treasury, ‘Transfer of functions from the Public Works Loan Board: response to the consultation’ (November 2016): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/568487/transfer_of_functions_from_PWLB_government_response.pdf [accessed 25 October 2019].




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