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Paper 5A - 24 November 2000 Meeting

ASSOCIATION OF HAMPSHIRE AND ISLE OF WIGHT LOCAL AUTHORITIES

24 November 2000

MODERNISING LOCAL GOVERNMENT FINANCE - THE ASSOCIATION’S RESPONSE TO THE GREEN PAPER

Report by the Chief Financial Officers’ Group in conjunction with the Honorary Secretary

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RECOMMENDATIONS

(1) That Members consider the Association’s response prepared by the Hampshire and Isle of Wight Chief Financial Officers’ Group with the Honorary Secretary; and

(2) That the response be sent to the DETR and LGA.
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SUMMARY

The Government has issued a "very green" consultation document. Responses are requested by 8 December.

INTRODUCTION

1. Most authorities have considered the Green Paper on Local Government Finance in some detail. The restoration of an adequate tax base for local government is critical to the development of a more active local democracy.

REFORMING THE REVENUE GRANT SYSTEM

2. The Government’s commitment to maintain, and, if possible, extend the amount of predictability and stability in the Revenue Grant system is welcomed.

3. The concept of ceilings and floors in annual grant is also to be welcomed. Given that the overwhelming proportion of Council’s budgets is taken up by either contractual commitments or staffing costs a floor set lower than the prevailing rate of inflation would cause significant problems for most Authorities. A floor lower than 0%, i.e. a cash standstill would lead to high Council Tax increases through the gearing effect and major cuts in services.

4. The system should allow the increased cost to authorities of new legislation to be reflected in their resource base.

5. Given the need for primary legislation to make any grant changes means that the new system could not take effect until 2003/04 an extension of the moratorium on SSA formula changes to 2002/03 is supported.

6. The potentially useful role for ‘judgement’ and ‘safety valves’ within the grant system is acknowledged. In particular, sparing use of ‘safety valve’ criteria to cater for the particular circumstances of individual authorities is likely to prove effective. Extensive use of judgement is likely, however, to damage the transparency and predictability of the grant system. Thus, the core funding for local authority services should be on a floor/formula based approach.

7. It is also vital that any new funding formulas continue to accurately reflect the higher costs faced by authorities in South East England. These high costs extend not only to salaries and wages but also to many other costs such as land prices and building and service contracts.

CAPITAL INVESTMENT AND BORROWING

8. There is a general welcome for the Government’s proposals on capital investment and borrowing.

9. Central Government should abolish the current borrowing permission system in favour of adherence to locally set prudential indicators.

10. Given an effective regime of prudential indicators there is no need to retain separate controls on the value of assets acquired by leasing.

11.Given that Central Government will always feel the need to retain reserve powers, the safeguards proposed are appropriate and certainly sufficient.

12. Grant funding linked to corporate capital strategies and asset management plans and based on Best Value principles is most likely to ensure that all appropriate sources of funding will be assessed to find the best deal for the taxpayer. Any additional measures to force Local Authorities to explore non traditional funding methods are likely to have both a distorting effect and add to bureaucracy.

13. The Green Paper is silent on any changes to the Approved Investment Regulations. These should be extended and widened to accord with the spirit of the Green Paper’s proposals on Capital Investment and Borrowing and to ensure that all financially prudent investment opportunities are available to Local Authorities.

TAXES AND CHARGES

14. There should be a regular revaluation of domestic properties to ensure anomalies are reduced and that the valuation figure is more meaningful to residents. More thought would have to be given, however, to the method by which the revaluation is undertaken to ensure that there would be widespread confidence in the accuracy of the new values.

15. In considering the responsibility for Council Tax billing, the importance of a seamless service - with collection of non-domestic rates, council tax and housing benefit being integrated - needs to be recognised. Also the transitional costs of any transfer from district to county, which in Hampshire would run to several million pounds, would need to be justified.

16. A more effective approach to make tax bills clearer would be to increase the proportion of Council spending raised through local taxes, e.g. by 'denationalising' business rates. This would make the bills made more meaningful in terms of services delivered and reduce the gearing effect.

17. The Council Tax Benefit Subsidy Limitation scheme, under which local taxpayers have to meet the additional costs in benefit of Council Tax rises above a certain threshold, should be abolished. The scheme has added to the cost of Council Taxes in its first two years and, as the Green Paper says, it is complicated and widely misunderstood. The limitation on benefit subsidy for higher banded properties should also be abolished.

18. The proposals for implementing the supplementary rate are likely to be unworkable in practice. The single partnership arrangement model is not unreasonable as a forum for discussing the issues outlined in paragraph 5.17 of the Green Paper, but it is highly unlikely that profit and/or cost sensitive organisations are going to vote in favour of a discretionary tax. Indeed, the whole concept of the partnership may be undermined if it is viewed as purely or mainly a vehicle by which Local Authorities persuade businesses to accept high taxes. Thus the need to get agreement should be replaced by a duty to consult and take account of views, with the final verdict being left to voters, many of whom are business ratepayers too

19. The concept of rate relief for small firms is supported but any attempt at applying this though the local rate collection system is fraught with difficulties requiring whole new administrative processes to be put in place to deal with claims and to monitor them. It is suggested that a turnover based approach would be much simpler to administer through the VAT system than the rating system.

20. The principle of extending mandatory relief to all businesses supplying essential services in rural areas is strongly supported.

ERIC NORMAN
 Director of Resources, East Hampshire District Council

ROBIN SMITH
 Honorary Secretary

Date: 14 November 2000
Annex: 0
Contact: Eric Norman - 01730

Last update: 22/11/2000
Author: Nick Goulder, Policy Manager

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