Draft local government bill on white paper – strong local leadership, quality public services

Report: 13
Date: 11 July 2002
By: Treasurer

Summary

The report sets out the main features of the draft local government bill which follows up last year’s White Paper – Strong Local Leadership, Quality Public Services. It also proposes responses to those features which are relevant to the Authority for inclusion in the GLA feedback to the consultation process.

A. Recommendations

1. That Members note the report; and
2. That Members endorse the comments on specific features of the bill and agree to their inclusion in the formal GLA response thereto.

B. Supporting information

Background

1. The Government has recently published a draft local government bill following up last year’s White Paper ‘Strong Local Leadership – Quality Public Services’. The proposals in the White Paper seek to change the relationship between central and local government; to establish a partnership for the delivery of high quality local services and to secure strong and responsive leadership by local government, freed from unnecessary Government controls. The draft bill is intended to give effect to all the proposals in the White Paper that require legislation. The government also issued a consultation paper on the draft bill and is inviting comments.

2. The White Paper did not explicitly set out the extent to which the various proposals will relate to police authorities, and therefore some of the points in the draft bill may prove to be of little relevance. The Association of Police Authorities is seeking confirmation from the Home Office on the extent to which elements of the White Paper are applicable to police authorities; when confirmation is received it will circulate its own consultation document on the draft bill. It is intended to provide a collective response from the GLA and functional bodies.

3. The key measures set out in the draft bill cover:

• A new, prudential capital finance system;
• New duties on local authorities in relation to financial management;
• Introduction of formula grant and the merging of revenue support grant (RSG) and non-domestic rates;
• Establishment of business improvement districts;
• Changes to non-domestic rates, including rate relief for small businesses;
• Introduction of a statutory revaluation cycle for council tax and various changes to the operation of council tax;
• Changes to housing finance;
• New powers to charge for discretionary services and to trade;
• New powers for the Secretary of State to remove controls on authorities depending on their performance classification;
• Proposals on local polls.

4. Some of the key measures won’t have any relevance to police authorities, for example, changes to housing finance. The following proposals and responses thereto will need consideration.

Capital finance

5. The bill sets outs out a new framework for local authority capital finance, a key feature being the freedom to raise finance for capital expenditure where the servicing of the resulting debt is affordable.

6. The main borrowing control will be a duty not to breach prudential and national limits. The bill empowers the Secretary of State to issue regulations requiring authorities to have regard to specified codes of practice. The intention is that this power will be used to specify the prudential code currently being developed by CIPFA. The code will set out the considerations necessary for authorities to determine their own affordable prudential limits.

7. The bill also provides the Government with reserve powers to impose national limits which would override authorities’ self-determined prudential limits.

8. Credit arrangements are defined broadly as at present and these will have to be encompassed within the prudential arrangements. The bill also helpfully clarifies borrowing and investment powers.

Comment

9. Removal of the present prescriptive borrowing controls and the extension of local discretion in determining the amount of borrowing that authorities can afford is strongly supported throughout local government. The development of the CIPFA prudential code needs to be fully supported by Government. Although it is perhaps inevitable that reserve powers should be put in place there must be a concern that they may be resorted to too readily. The draft bill does not lay down any conditions which would have to be satisfied before the reserve powers could be invoked and this deficiency should be addressed.

10. There is a local issue as to how the prudential code would actually operate in the context of the GLA and functional bodies. It is the functional bodies such as the MPA which will undertake borrowing to finance capital expenditure. However affordability will be a crucial issue for the Mayor and Assembly because of their responsibilities in terms of setting the precept. The GLA group chief finance officers are considering this issue initially with CIPFA. There would appear to be a need for a collaborative approach between the GLA and the functional bodies. It is not clear at this stage whether this requires specific reference in the legislation.

Financial administration

11. Financial administration covers a number of proposals:

• Power for the Secretary of State to determine a minimum reserve level for local authorities by regulation;
• A requirement for the chief finance officer to report on the adequacy of reserves and robustness of budget estimates as part of the authority’s budget setting process;
• Local authorities to be given a statutory duty to monitor their budget and take action in the case of overspends and shortfalls of income;
• The easing of provisions preventing local authorities from entering into agreements following a section 114 report which the chief finance officer must produce if the authority is overspending.

Comment

12. At present the guidance from CIPFA is that each authority should determine its reserves on the advice of its chief finance officer. This allows the specific circumstances and risks affecting individual authorities to be taken into account in setting the appropriate level of reserves.

13. The prescription of quantified minimum levels may have unfortunate consequences. It may result in a higher increase in council tax just to comply with a government determined minimum reserve level, even if the local professional advice suggests that this is not necessary. O the other hand the existence of minimum reserve levels may induce complacency and inhibit authorities which really should have higher reserves from seriously considering the issue. The range of different circumstances affecting individual authorities is too great to allow for a one-size-fits-all approach.

14. Prescription in the area of reserves policy does not sit comfortably with the move to local determination, in the same piece of legislation, in respect of borrowing policy. It would be preferable to strengthen the statutory basis of revised CIPFA guidance. This ought to be sufficient coupled with the requirement to report on the adequacy of reserves to ensure transparency and proper consideration which can then be assessed by the external auditors.

15. As with the operation of the prudential code the actual involvement of the various GLA group chief finance officers in reporting on the adequacy of reserves and robustness of estimates will need to be worked out. As the legislation is drafted the duty is placed on the chief finance officer of the GLA because it is related to the setting of the precept. It seems that there would need to be some certification by the chief finance officers of the functional bodies about the position in relation to their own budgets and reserves. Again there is a question as to whether this should be reflected in the legislation.

Formula grant

16. The proposals on formula grant will mean that authorities will receive a single grant, instead of separate revenue support grant and non-domestic rate amounts. The amount of non-domestic rates to be distributed to authorities will still be identified at a national level, even though it will be consolidated with RSG into a single Formula Grant payment.

Comment

17. On the face of it this just a measure to simplify the presentation of the grant system. However the LGA has expressed concern that it may make it more difficult to return non domestic rates to local control which should remain an option in the ongoing debate about the balance of funding between central and local government.

Council tax

18. These proposals will impact on the GLA as the precepting body and include:

• The introduction of a statutory 10-year cycle for revaluing domestic properties;
• Power to the Secretary of State to vary the number of council tax bands;
• A set of changes to the rules on enforcing council tax collection.

Comment

19. It is essential to maintain the credibility of council tax as the only local tax currently available. If these changes help that they could be supported. The GLA may have views on any potential impact on the taxbase for London.

Powers to charge and trade

20. The bill gives authorities the power to charge for discretionary services, setting out what an authority may charge (this amount will be limited to the recovery of costs).

Comment

21. In general an increase in local discretion to charge for services should be supported.

C. Financial implications

None other than those identified above.

D. Background papers

• DTLR White Paper: Strong Local Leadership – Quality Public Services
• Draft Local Government Bill

E. Contact details

Report author: Peter Martin, Treasurer, MPA.

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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