Summary of proposal and commentary Appendix 2

Each of the following sections includes a brief list of the proposals of the white paper, followed by a commentary on the more significant issues.

1 Leading and empowering communities

1.1 Key points:

· Recognises the role for local councils in linking the delivery of services with local people's needs and ambitions. There is a strong emphasis on consultation and the council's need to resolve conflict when there is no consensus view. Particular mention is made of the local council leadership role in encouraging diversity, sustainable development and partnership working

· Will invite the Electoral Commission to develop options for improving turnout at elections

· Will work with the LGA and IDeA to review the effectiveness of modernised political structures, placing a recurring emphasis on the mayoral option. Proposals include enforcing a review of political structures every five years, streamlining the definition of `key decisions' and co-opting non-councillor members onto overview and scrutiny committees

· Ensuring partnerships are effective, by using Local Strategic Partnerships as a focal point for the majority of inter-agency working and reducing the number of statutory partnerships. Proposals include using the Government Office accreditation process and development of further guidance to ensure LSPs, although there is recognition of the need to maintain a flexible framework.

Commentary:

1.2 The council's consultation strategy uses a wide range of mechanisms to ensure effective engagement with communities

1.3 A Best Value review of Democratic Services is scheduled for year 3 of the five-year programme and provides the potential for considering some of these issues at a strategic level.

1.4 The constitution will be kept under review and plans have already been made for a full council `Lessons Learnt Workshop' in March 2002

1.5 The council's approach to developing LSPs and Community Strategies will keep these issues under continuous review.

2 Quality public services

2.1 Key points:

· The Central Local Partnership will develop a single list of priorities for local government, focussing on Government's national priorities of education, health, crime and transport

· Introduction of an integrated system of performance measures

· Corporate performance assessment: the Audit Commission identified four categories of local government performance in their second annual statement on Best Value, `Changing Gear': high-performing; striving; coasting; poor-performing. These will be used to determine the level of intervention and prescription to be applied. The `carrot and stick' approach aims to relate audit and inspection to `risk' and to provide freedoms and support or intervention in accordance with their performance:

· high performing authorities will be offered "removal of restrictions and requirements on planning, spending and decision-making" and provided with "new powers to trade and charge" allowing councils "to innovate and deliver..."

· poor performing councils "will receive a directed approach to support and capacity building and government intervention, including a comprehensive programme of inspections". Failure to respond could lead to:

· transfer of functions to other providers

· placing the council in administration

· franchising management - when stronger councils are given a role in running weaker ones.

· development of local PSAs will continue and there is an expectation of greater collaboration between county and district councils.

· Streamlining Best Value - there is a strong emphasis on the need for fewer Best Value reviews that are more strategic in approach. High-performing and striving councils in particular will have more freedom over determining their five year programme, indicating a loosening of the need to review 100% of services.

Major changes are proposed to the content and publication of the Best Value Performance Plan:

· The publication date will be 30 June from 2002, when it is anticipated it will contain actual performance information and to fall in line with the approval of annual financial statements.

· The summary information for local taxpayers and service users will be published by 31 March. Publication will be integrated with the council tax leaflet from 2002.

Commentary:

2.2 The introduction of a single set of national priorities runs the risk of reducing capacity to respond to and support local priorities.

2.3 An integrated system of performance measures, which breaks down differences between Government departments, would be welcomed.

2.4 The County Council has already shown support for the approach to differentiated audit and inspection by being one of 40 pilot authorities, working with the Audit Commission on the Integrated Audit and Inspection Initiative. Development of the corporate assessment model will be a key aspect of this work, since its credibility will depend on a robust methodology and rationale, which can be accepted by all categories of authority. The timing of the white paper publication has set back the use of the corporate assessment model in the pilot exercise, which is now reliant on less formal arrangements. However, early indications are that the council's performance is well regarded and will result in a reduced Best Value inspection programme for 2002/03.

2.5 Based on early discussions with the District Auditor and the Best Value Inspectorate, the Best Value Steering Group and Cabinet have already endorsed a change in approach to developing the council's five-year Best Value review programme along the lines of the white paper proposals. The council's existing Best Value process plus guidance and support offered by the Corporate Performance Management Team, already adopts the proposals for reviews: early involvement of auditors and inspectors; involvement of service users, other stakeholders and independent `challengers'; involvement of Overview and Scrutiny Members

2.6 The proposals for the Best Value Performance Plan pose significant logistical difficulties, particularly for 2002:

· Publication of the council tax leaflet, the summary performance plan in Hampshire Now and the full performance plan were already well advanced by the time the white paper was received. In particular it has proved impossible to undo all plans for printing and distribution, and there are likely to be some administrative complications arising from the spending falling in different financial years in future.

· Actual performance information is normally published in October / November, following audit. A significant amount of the data is also dependant on financial input measures and is unlikely to be available for June.

· A June publication date, requires data to be available from the end of May, in order to allow time for printing.

and the following approach will be adopted:

· The council tax leaflet will carry a slightly expanded trailer for the summary performance information to be published in Hampshire Now

· The spring edition of Hampshire Now will continue to contain an 8-page pull-out summary of performance information. The content has been agreed in outline by the Members Working Group and covers those key performance issues familiar to the council. Although the link will still be made to the full performance plan, it will no longer aim to summarise that document.

· The links between the summary performance information and the council tax leaflet will be explored in greater detail once the DTLR guidance is published, with a view to planning for 2003.

· The full performance plan will be published by 30 June, containing as much actual performance data as possible. Reference will be made to the fact that some information is still estimated and how to obtain the full set of actual data in the autumn.

· A full set of actual performance information will be published in the local press in the autumn.

3 Freedom to deliver and investing for improvement

3.1 Key points:

· Financial freedoms - are covered in greater detail under the financial sections

· Will work with the LGA on rationalisation of statutory plans

Commentary:

3.2 The rationalisation of statutory plans, especially those linked to funding, is welcomed

4 Support for councils

4.1 Key points:

· Recognises the need to build organisational capacity by continuous development of member and officer skills and to share resources to do so

· Invites consultation on the issues identified

Commentary:

4.2 Appendix 3 provides detailed commentary in the form of a draft response to Chapter Five

5 Working together for better outcomes

5.1 Key points:

· DTLR will work with the Office of Public Services Reform to develop a corporate approach to delivering and evaluating progress with the proposals in the white paper. Recognises the need for improved co-ordination within and between Government departments, inspectorates and other agencies supporting local government modernisation.

Commentary:

5.2 The recognition of the need to improve is welcomed and the council will watch closely for evidence of change.

6 Balance of funding and control

6.1 Key points:

· no immediate changes are proposed to the proportion of local government spending funded from local taxes, although the Government intends to investigate the issues further

· no return of business rates to local control

· no mention of a local income tax, or other means of widening the local tax base

· a reduction promised in the proportion of Government grant ring-fenced as specific grants, with a corresponding increase in general grant including "targeted" grants

· targeted grants are described as general grants that have no conditions attached by the Government to specify how local authorities spend them but, unlike normal general grant such as the revenue support grant, they may be subject to conditions on local authorities' eligibility to receive them

· ring-fencing will only be used where the Government perceives high national priorities and where policy objectives cannot be achieved by specifying outcome targets

· all ring-fenced grants will be kept under review, with the aim of removing them as soon as possible

· "high-performing" authorities may have some ring-fenced grants replaced by targeted grants. (Part One of the white paper sets out the Government's proposals for a "comprehensive performance assessment" which will classify local authorities into four categories of high-performing, striving, coasting or poor-performing on the basis of performance indicators, inspections and assessments)

· no ring-fencing of the general revenue grant for Education, but Government funding will be split between schools and local education authorities enabling all stakeholders to track the Government's funding through to individual schools

· the Government will also retain a reserve power to require local authorities to budget for schools at a level decided by the Secretary of State for Education and Skills.

Commentary

6.2 It is disappointing that the Government continues to oppose restoring business rates to local control, which would be simplest way of improving the balance of funding between central and local tax payers.

6.3 The Government argues that there is little hard evidence that the current balance has an adverse impact on local authorities' autonomy. Local government will need to convince the Government in its proposed further review of the issue, which will involve Ministers and senior figures from local government.

6.4 The Government sees the balance of control between central and local government as a more serious and urgent issue than the balance of funding. It acknowledges the growth in ring-fenced or "specific" grants in recent years, at the expense of general grants.

6.5 The Government's commitment to reduce ring-fencing is welcome, as is the decision not to ring-fence the general grant support for Education. But there is little evidence from the 2002/03 RSG settlement that the Secretaries of State for Education and Health will support a switch to general grant in practice. Their specific grants have been increased substantially yet again.

6.6 The Council should oppose the Government's plan to take a reserve power to set a minimum budget for schools as an unwarranted intrusion on local autonomy.

7 Revenue grant

7.1 Key points:

· standard spending assessments (SSAs) will be replaced in 2003/04 with a "fairer" and simpler system for distributing general grant

· local authorities' corporate plans will not be used by the Government as the basis for funding

· instead, a simpler formula will be developed which will not rely on analyses of past spending patterns, unlike SSAs

· no details of this simpler formula are available, apart from the schools element which will be based on amounts per pupil uplifted where appropriate for deprivation and higher costs of staff recruitment and retention - a possible threat to the area cost adjustment which currently also covers non-pay costs

· floors and ceilings for general grant increases will continue

· once the new formula is in place in 2003/04, there will be a freeze on formula changes for two years, 2004/05 and 2005/06.

Commentary

7.2 Perceptions of "fairness" in revenue grant distribution are inevitably subjective and it will be difficult for the Government to design a system that will be accepted as both fair and simple - two concepts that are not likely to be compatible. The abandonment of proposals to use local authorities' corporate plans as a basis for grant distribution is welcome.

7.3 There are strong grounds for moving away from formulae based on past spending patterns. At this stage, it is difficult to comment on what might replace SSAs. The Government has very little time left if it is to develop a formula for use in 2003/04.

7.4 Of particular concern to Hampshire will be how the higher costs of delivering services in some parts of the country, notably London and the South East, are dealt with in the new formula. The existing area cost adjustment covers all costs, both pay and non-pay. Representations have already been made to the Government that the formula for schools funding should not just reflect staff recruitment and retention costs. That would be clearly illogical and it is suggested that the County Council should make strong representations to the Government on this point in respect of all services. A current example of pricing pressure in the south east is the cost of purchasing social services residential care places which has been exacerbated by market pressures and the reduction in private and independent places.

7.5 Whilst floors for the level of individual local authorities' grant increases are sensible, ceilings should not be applied to limit the increases for those authorities whose need to spend has grown as indicated by the grant formula. The cost of applying the floor should not be met by reducing the grant entitlement of other authorities but, as in the case of education and social services authorities in 2002/03, it should be funded by the Treasury with additional resources.

8 Capital finance system

8.1 Key points:

· reform of the capital finance system will remove the Government's control on local authorities' borrowing through credit approvals - when the legislative timetable in this Parliament permits

· instead, local authorities will be able to decide their own levels of borrowing without the need for consent from Government, operating within self-regulated prudential limits in a code being drawn up by the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Government

· the Government will retain reserve powers to limit borrowing in individual cases or if national economic circumstances dictate

· Government financial support for local authorities' capital investment will continue, possibly as capital grants instead of via the general revenue grant

· local borrowing above the level of the Government's support will have to be financed, in terms of loan repayment and interest costs, by the local authority itself from its own resources

· the single capital pot for distributing Government support for capital, introduced for 2002/03, will continue but its operation will be subject to a review

· local authorities will still be required to produce corporate capital strategies and asset management plans, but some high-performing authorities may not have to submit them to Government

· the "receipts taken into account" mechanism (RTIA) will be abolished under the prudential regime - the RTIA is the Government's way of redistributing capital receipts between local authorities

· public-private partnerships (PPP) and the private finance initiative (PFI) will continue to be encouraged by the Government

· new legislative power to invest surplus funds will be introduced, with a simpler regime.

Commentary

8.2 The proposal for a prudential system of capital controls is welcome, but legislation is required to implement it. So far, the Government has not indicated when it will bring forward the necessary Bill beyond saying that it will be within this Parliament. As that could stretch until June 2006, the Government should be encouraged to legislate for the prudential system as soon as possible.

8.3 The welcome abolition of the receipts taken into account mechanism is long overdue. It is right that Hampshire alone should benefit in full from the sale of its own assets.

9 Council tax

9.1 Key points:

· billing responsibility for the council tax will not be transferred from district councils to county councils during this Parliament, but the Government will keep it under review

· properties will be revalued for council tax purposes every ten years

· work will start on revaluations in 2005, with the new valuations in use from 2007/08

· no immediate changes to council tax bands are proposed - the Government will listen further to the views of taxpayers and local government and, in the meantime, will legislate to enable it to create additional bands by ministerial order

· the Government accepts that the increases in council tax experienced in recent years are not sustainable in the future - and will issue guidance on best practice on consulting local people on tax and spend decisions

· reserve capping powers will be retained by the Government, but with a long-term goal of dispensing with them

· as a first step, the reserve capping powers will not be applied to high-performing councils

· the council tax benefit subsidy limitation scheme has been abolished by the Government from 2002/03, with the cost of benefits previously met by local authorities under the scheme falling on the Treasury

· Government are consulting on giving billing authorities more discretion over council tax discounts and exemptions, including second homes and empty properties

· the Government will legislate to turn combined fire authorities into major precepting authorities - the Hampshire Fire and Rescue Authority will then set its own council tax, like Hampshire police, instead of levying on its constituent authorities.

Commentary

9.2 The County Council would be well placed to take on the collection of the council tax, if that is what the Government decides in the longer term.

9.3 The decision to revalue properties for council tax purposes every ten years is sensible

9.4 There are arguments that the relatively narrow range of the existing eight council tax bands from A to H makes the tax too regressive. One option discussed during the review was to allow individual councils the flexibility to set their own bands to suit local circumstances, perhaps by combining some of a larger number of national bands. The white paper does not refer to this option, but it does say that the Government is willing to listen to the views of tax payers and local government on ideas concerning council tax bands.

9.5 The council tax is generally accepted by the public, unlike its predecessor the community charge. Fear of losing that acceptance may be why the Government is reluctant to make any significant changes to the council tax.

9.6 The Government's comments on the sustainability of recent high increases in the council tax have an ironic aspect given that they are largely caused by its decisions to increase spending on local services and to require local tax payers to meet their share of the increase. In the longer term, the alternatives appear to be widening the local tax base, increasing central Government support for local services or reducing the increase in public spending.

9.7 The white paper also criticises some local authorities' claims that, even with the large increases in Government support in recent years, they are still faced with a choice between steep council tax increases and budget cuts. This, the white paper says, undermines the local authority's credibility with the Government and the local authority's own voters. It goes on to say that local authorities should be able to absorb inflation at the level of recent years, 2% to 2.5%, through similar levels of improved productivity that other public and private sector bodies have achieved. Authorities receiving the minimum or floor level of grant increases should still be able to plan for improvements and increases in services, not for cuts.

9.8 This analysis by the Government shows little comprehension of the costs suffered by local government from rising demands for services from the public, above average inflation including centrally imposed pay awards, excessive reductions in grant support by the Government for functions transferred away from local government, and the increased and expensive prescription by Government in areas such as best value. For example, the national pay award for teachers has averaged 3.8% per annum over the last three years. This is the largest inflation element in the budget but the Council has no direct control over it in terms of the size of the award or the deployment of teachers under local management of schools.

9.9 Removing the threat of capping from high-performing authorities is likely to be an empty gesture. An authority is unlikely to remain "high-performing" for long in the Government's eyes, if its council tax increases are too high.

9.10 Abolition of the council tax benefit limitation scheme is welcome but it was clear from its introduction in 1999/00 that the scheme was misguided, as the County Council pointed out at the time. It is a pity that it has taken the Government three years to admit its error, but it is welcome news that the Government has found the resources to fund the scheme's abolition, worth about 0.5% off the council tax rise that would otherwise occur in 2002/03.

9.11 Allowing combined fire authorities (CFAs) to set their own council tax may improve their accountability to the taxpayer by making the effects of their financial decisions more transparent. On the other hand, the moderating effect of the scrutiny applied by the constituent authorities to the CFA's budget will be lost. The CFA will also have to hold balances and reserves in future. This is currently avoided under the present arrangements, with the much larger constituent authorities able to absorb the risks within their own financial strength. It may lead to further increases in the cost of the fire service for the council tax payer. It will also leave a patchwork of arrangements for the fire service across the country. The 14 county councils that were not affected by reorganisation in 1997 will still be responsible for the fire service and will continue to meet the cost from their own council tax. The County Council may also lose contract work for services provided to the CFA.

10 Business rates

10.1 Key points:

· revaluations will continue to be at five-yearly intervals, with the next due in 2005/06

· transitional relief following revaluations will become self-financing, with the gainers paying for the losers, and it will unwind by the time of the next five-yearly revaluation

· the Government will be able to adjust the rate in the £ to reflect its over or under estimates of losses on appeal

· proposals for a local supplementary business rate have been abandoned

· instead, the Government will introduce business improvement districts (BIDs), funded by additional levies on the rates

· BID schemes will be agreed with local authorities by local businesses in a vote requiring a majority of business rate payers by both number and rateable value

· BIDs could be used for any improvements in the locality, including environmental improvement schemes, security improvements, local training schemes, rural bus services etc

· BIDs will be promoted by billing authorities but may involve other bodies, such as county councils, if they can contribute to the delivery of the BID objectives

· a mandatory rate relief scheme will be implemented for small businesses, including non-profit making bodies such as sports clubs, to be funded by other ratepayers

· agricultural exemption from rates will be extended to cover modern farm business practices such as share farming, but will be tightened to exclude ancillary activities such as food processing and packaging.

Commentary

10.2 The supplementary local business rate, now abandoned by the Government, looked likely to be impractical and bureaucratic. It was not a realistic step towards returning the business rate to local control, and nor are the proposed BIDs arrangements. The Government's willingness to respond to opposition from the business community to any form of local control appears to be the key factor affecting its thinking on local business rates.

10.3 The proposed BIDs are based on similar arrangements in the United States. Like the supplementary rate, they seem to be complex and costly to implement although the Government argues that they should be seen as a means of achieving improvements through partnership with the business community rather than just as a way of raising revenue for local authorities.

10.4 As billing authorities will be responsible for promoting BIDs on the local government side, it is likely that the scope for the County Council to benefit from additional funding from this source will be limited. There may be opportunities, however, for working in partnership with district councils or neighbouring authorities, to secure improvements in line with the County Council's policy aims.

11 Other taxes and charges

11.1 Key points:

· the Government will use existing legislation to allow local authorities with a strong performance in a service to "trade", ie to supply and charge for that service under contract to others in the public, private and voluntary sectors

· high-performing local authorities will be able to trade in this way for all their services

· local authorities will also be given a general power to charge for discretionary services

· local authorities will be able to use the proceeds from fines on littering, dog fouling and parking for additional spending to enhance the local environment (and, in the case of high-performing authorities, for any purpose)

Commentary

11.2 These relaxations are welcome but it is symptomatic of the Government's thinking that it sees the ability to retain and spend fines for dog fouling as a notable "freedom" for the new local government.

11.3 None of the fines are collected by the county councils so the proposal will not benefit Hampshire County Council. Indeed, the recent proposals on the standardisation of charges on home care income - a significant source of income - results in a further arbitrary pressure of over £2m in a full year for the Council.

12 Reserves and financial management

12.1 Key points:

· the Government will legislate to require the chief finance officer to report to the council on the robustness of the budget calculation and the adequacy of its reserves, when the council tax is set

· the Secretary of State will be given reserve powers to specify the statutory minimum level of reserves to be provided in budgets

· the Government will also legislate to create a new duty on local authorities to review their finances during the year and to take corrective action where necessary

· local authorities will be required to prepare and approve their accounts by 30 June, instead of 30 September, in line with the publication of the best value performance plan

· the date for publishing the accounts will also be brought forward from 31 December

· the Bellwin scheme for Government support of local authorities dealing with emergencies or disasters will continue, with some refinements.

Commentary

12.2 No evidence has been put forward by the Government to demonstrate that the lack of a statutory duty to report on the robustness of budgets or the adequacy of reserves has led to financial problems for local authorities in the past. These are matters that are best left in professional guidance, such as the paper on the role of the chief finance officer currently in preparation by CIPFA, and not embedded in legislation.

12.3 The levels of reserves should be a matter for each local authority to decide in the light of its own circumstances. There is a risk that more taxpayers' money will have to be tied up in excessive reserves. Reserves are only one part of the overall budget strategy and system of financial control. Circumstance vary from year to year and from council to council - this is unnecessary prescription.

12.4 It is surprising that the Government thinks that local authorities have to be forced by legislation to keep their finances under review. Again, no evidence has been put forward to support the need for such prescription. This is not something that the Council may feel it needs to be lectured on. It contrasts sharply with the themes running through the white paper of increasing local authorities' freedom and cutting red tape.

12.5 Preparing the accounts earlier will require changes in practice, not least by the Government which will have to issue its scheme-specific borrowing approvals much earlier than the existing deadline of 30 September.

13 Role of officers and councillors

13.1 Key points:

· the white paper emphasises that the chief finance officer has an especially important role to play in providing professional advice on financial issues and maintaining a strategic overview of an authority's financial situation

· it also highlights the need for all officers to take responsibility for the financial management of their services

· the Government says that setting the budget and a prudent level of reserves will continue to be key role for councillors

· the executive will take the lead in framing proposals, but there is an important role for all councillors in scrutinising the proposed budgets

· responsibility for approving the budget will remain a function of the full council

· councillors will also exercise many of the new freedoms and responsibilities proposed in the white paper, for example, in deciding prudent borrowing levels

· the Government wants councillors to take the lead in fulfilling the new duty to keep finances under review, both revenue and capital, with scrutiny committees having a lead role

· councillors should also decide when and how to consult local people and partners on the authority's annual budget and longer term plans

· the white paper also says that overview and scrutiny committees should use their powers to question the executive's plans, scrutinise performance against budget, review delivery and cost effectiveness, and ensure financial stability for the council.

Commentary

13.2 These arrangements should not be the subject of Government prescription but should be left to each local authority to determine, taking account of its local circumstances.

13.3 It is reasonable for scrutiny committees to review the adequacy of finance but the lead responsibility must rest with the executive in being accountable to the Council when setting and managing the Council's budget and spending.

13.4 Again, this seems like more detailed prescription and bureaucracy rather than freedom and local governance. It should be objected to strongly.