Response to Government on general issues Appendix 5

5 March 2002

The Right Honourable Nick Raynsford MP

Minister for Local Government and the Regions

Eland House

Bressenden Place

LONDON

SW1E 5DU

Dear Minister

Local Government White Paper: `Strong Local Leadership -

Quality Public Services'

The County Council wishes to make the following representations on a number of the proposals in the white paper on local government.

Overview

The County Council has considered the white paper in the context of other recent or forthcoming Government proposals, including the review of Best Value, the Planning green paper and the forthcoming white paper on the Regions.

All are likely to have a significant effect on local government and will interact with each other. There are risks that a piecemeal approach to these issues will have unforeseen impacts on local government and the County Council urges the Government to adopt a more co-ordinated approach to considering the future structure of local government. The County Council will wish to review and comment on the overall picture once the white paper on the Regions has been published.

Leading and empowering communities

The County Council welcomes many of the proposals in Part 1 of the local government white paper. These include the Government's recognition of the role played by councils in linking the delivery of services with local people's needs and ambitions. There are difficulties, however, caused by the differences between the geographical boundaries of the County Council and health authorities. This is particularly important for the County Council's scrutiny responsibilities and health authorities' own wish to deal with issues at a county-wide level.

Quality public services

The County Council welcomes the proposals for a differentiated approach to Government intervention, although there are considerable difficulties to be overcome in establishing a credible performance assessment framework.

Since the `carrot and sticks' of financial benefit and freedoms or intervention are attached to the framework, the County Council is concerned about how the evidence is collected, weighted and reported, in arriving at the overall conclusion. It is also doubtful whether the freedoms mentioned will generate substantial changes.

The single list of national priorities for local government to be developed by the Central Local Partnership should not be allowed to reduce the capacity of councils to respond to and support local priorities.

Streamlining Best Value

The principle of publishing the full Best Value Performance Plan by 30 June each year is sensible, although there will be logistical problems with publishing some actual performance figures by that date.

Area cost adjustment

It is essential that the proposed new revenue grant distribution formula includes an adjustment equivalent to the existing area cost adjustment. That adjustment currently covers all the higher costs of providing services in the South East. The brief description of the proposed schools formula in Part 2 of the white paper suggests that it will include an enhancement that covers the "high costs of recruiting and retaining staff", only. That would omit many other costs, not least services contracted from the private sector. It is also essential that the adjustment continues to cover a wider area of South East England than just London.

Schools' budgets

The Government proposes retaining a reserve power to set a minimum budget for schools. This is unnecessary with the separation of schools' budgets proposed with the new funding system from 1 April 2003, which provides for openness, transparency and local accountability between the Council, its schools, the Government and the electorate. A reserve power would be an intrusion on local autonomy and the County Council asks the Government to reconsider this proposal.

Floors and ceilings

According to the white paper, floors and ceilings will be a feature of the new revenue grant distribution system. The County Council considers the use of floors for individual authorities' grant increases to be sensible but urges the Government not to apply ceilings to them. It is unfair and damaging to limit the grant for authorities whose need to spend has grown as indicated by the grant formula.

Ring-fenced and targeted grants

The County Council welcomes the Government's commitment in the white paper to reduce the proportion of its support distributed as ring-fenced grants. The County Council urges that most support is distributed within the general formula grant and that targeted grants are kept to a minimum. There are dangers that the allocation of targeted grant will be too subjective and open to unwarranted political influence. National priorities can still be achieved through the general formula grant in combination with Public Sector Agreements and Best Value targets.

Prudential system of capital controls

The County Council welcomes the decision to implement the proposed prudential system of capital controls and abolish the `receipts taken into account' mechanism. It urges the Government to bring forward the necessary legislation as soon as possible.

Business rates - return to local control

The County Council asks the Government to reconsider its decision not to return the business rate to full local control. This should be a key objective for the Government's proposed high-level working group that will look at the balance of funding of local services between central and local taxes. Returning the business rate to local control will re-establish the democratic link between local government and the business community with significant benefits for local accountability and autonomy.

Council tax bands

The County Council welcomes the Government's proposal to legislate so that additional council tax valuation bands can be created without primary legislation. It urges the Government to make early use of these powers to increase the number of bands at the top end. This would help to reduce the regressive nature of the council tax which particularly affects people whose income is just above benefit thresholds.

Sustainable council tax rises

According to the white paper, the Government does not believe that council tax increases at recent levels are sustainable in the future. The County Council agrees with that analysis but would point out that the rises have been caused by the Government's decisions to increase spending on local services and to require local tax payers to meet their share of the increase.

The alternatives are to widen the local tax base, for example by returning the business rates to local control, or to increase central Government support for local services.

The white paper criticises some local authorities which claim 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. That criticism is misplaced. It shows little understanding of the cost pressures on local government from rising demands for services from the public, above average inflation including centrally imposed pay awards and excessive reductions in grant support when functions have been transferred from local government.

It is unrealistic to expect local authorities to offset all increases in costs by improvements in cost-effectiveness, as the white paper claims. For example, the national pay award for teachers has averaged 3.9% per annum over the last four 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. The proposed new grant distribution system will not resolve this problem, unless the Government meets a larger share of costs that derive from its own decisions.

Reserves and financial management

The white paper outlines a number of proposals on reserves and financial management, including:

· a statutory requirement for chief finance officers to report to the council when it sets its council tax on the robustness of the budget calculation and the adequacy of its reserves

· a reserve power for the Secretary of State to specify a statutory minimum level of reserves

· a new duty on local authorities to review their finances during the year and to take corrective action where necessary.

Imposing these statutory requirements on local authorities contrasts sharply with the themes running through the white paper of increasing local authorities' freedom and cutting red tape. There is no evidence to show that the lack of such statutory requirements has led to financial problems for local authorities. A statutory basis seems unnecessary as these are matters best left in professional guidance.

Each local authority should decide its levels of reserves in the light of its own circumstances and overall budget strategy. There is a risk that more taxpayers' money will have to be tied up in unnecessary reserves if a statutory minimum level is set.

New formula system

There seems to be very little time to develop and consult on the new revenue grant distribution formula before 2003/04. It is important that the system is robust and not rushed, based on sound data and formulae, with less reliance on regression on past spending. We still find it difficult to see how the balance will be struck in the proposed formula between fairness and simplicity.

The new system must also be based on a realistic spending plan for services. A new formula alone will not solve the problems caused by the existing underfunding of, for example, social services. The new system will soon become discredited if the underlying provision continues to be inadequate.

I hope these comments on the white paper will be reflected in the proposals as they are implemented.

Yours sincerely

Ken Thornber

Leader