Localism Act 2011 (Consequential Amendments) Order 2014

Baroness Stowell of Beeston Excerpts

Tuesday 4th February 2014 Grand Committee

Moved by

[Baroness Stowell of Beeston]

That the Grand Committee do consider the Localism Act 2011 (Consequential Amendments) Order 2014.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Stowell of Beeston) (Con)]

My Lords, the Localism Act 2011 introduced council tax referendums as a replacement for the previous capping regime. It did this by amending the Local Government Finance Act 1992, into which it inserted a new chapter—Chapter 4ZA—on council tax referendums and a new Section 31A, which changed the way local authorities in England determine their council tax. Other consequential amendments were made to legislation, including to the Greater London Authority Act 1999.

The order before the Grand Committee today updates the legislation to take account of changes that have taken place since the Act was passed. The order corrects several minor drafting errors, such as the incorrect classification of grant repayments as income rather than expenditure, and it provides a route for the GLA to recover from errors and oversights during the budget setting process. I do not propose to cover each of the amendments in detail, but I will just give a summary of what each article in the order does.

Article 2 details how local authorities should take account of any transfers from their general fund to their collection fund when determining their council tax requirement. Such transfers would be rare but theoretically possible, so it seems sensible to include a reference to them in legislation.

Article 3 makes it a requirement for major precepting authorities, such as county councils, when estimating their expenditure for the year, to take account of certain payments which may become due to billing authorities. This is again a minor amendment to ensure that legislation captures all the existing payments and transfers between authorities.

Article 5 corrects a drafting error in amendments made to the Greater London Authority Act 1999 by the Localism Act 2011. It requires repayment of grants by the GLA to be classed as expenditure rather than—as currently, and incorrectly, stated—as income.

Article 6 removes a redundant reference in the GLA Act to “relevant special grants”.

Article 7 also amends the GLA Act to address an unforeseen deficiency in the statutory timetable for the GLA when setting and revising its budget and council tax requirement. If the GLA were to set an excessive council tax increase, in common with the obligations on all local authorities it would be required to hold a binding referendum to seek local agreement to the increase. As part of this process, the authority would be required to draw up an alternative budget that did not require an excessive increase in council tax, which could be adopted if the referendum was lost. There are fixed statutory deadlines for these budgets to be set, revised and approved. Currently it is possible for the GLA, through error or oversight, to set an excessive council tax increase without leaving itself sufficient time to gain approval for an alternative, non-excessive budget. Article 7 provides the GLA with a way to recover from such a situation, by allowing the Assembly to approve a revised non-excessive budget at a later date.

A copy of the draft order was shared with the GLA and revised in the light of their comments. I commend the order to the Committee. I beg to move.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the noble Baroness, Lady Stowell, for introducing the order. I do not think we will detain her long in our consideration of the amendments that it makes, although this is one occasion—perhaps the first—when I found the Explanatory Note somewhat more impenetrable than the actual instrument.

As we have heard, the amendments focus on aspects of the calculations necessary as a result of the changes brought about by the Localism Act for so-called potentially excessive amounts of council tax. They amount to a capping regime and are driven by the determination of basic amounts of council tax for a financial year, rather than, as previously, budget requirements. Whatever our views on these arrangements, we accept that the detail of the calculations and the process should be logical.

Article 2 is said to be consequential and aimed, it seems, at ensuring symmetry by making sure that sums transferred from an authority’s general fund to its collection fund are excluded from the calculation of expenditure, just as funds transferred in the opposite direction are excluded from income. I think that that is the purpose, but I presume that this is not retrospective. Can the Minister say what the impact has been on any specific local authority situations of these provisions being absent? Is it possible that a preceding year has been done on the basis of the current rules, and can she therefore say what the implications of this change are?

Article 3 requires estimated expenditure as well as payments and receipts to be taken into account when calculating council tax requirements. Will the Minister assure us that there will be no double counting, whereby amounts estimated for one period are excluded from a later calculation when they are actually paid?

Article 5 is a consequential amendment to ensure that repayment of grants are taken into account on the expenditure side of the equation rather than netted as income. The Minister said that this corrected an error in the drafting. Can the Minister say a little more about the nature of the grants involved and the implications of the provision? How many authorities’ calculations have treated grant repayments as income to date, and how will matters be rationalised if they have? What is the impact of this? Does the new treatment affect the calculation of amounts of council tax in any circumstances?

So far as Article 6 is concerned, we accept that the provision is purely consequential.

On Article 7, the Explanatory Note was most difficult to fathom, but at the end of the day it seems to be essentially about a process issue. We understand that there is currently a range of circumstances in which the London Assembly has to initiate a substitute consolidated budget, or substitute council tax requirement, where the Mayor has failed to present one. However, currently these have to be made within statutory deadlines. Where a major precepting authority fails to notify an excessive increase to a billing authority, the precepting authority must issue a precept based on substitute calculations. However, until it does so, the billing authority cannot pass any funds back to the precepting authority, so it needs to have a process for making substitute calculations at a later date. Is our understanding of that correct? Is that all there is to this article?

Subject to any points the Minister may make, we certainly would not seek to resist the order.

[Baroness Stowell of Beeston]

My Lords, I am grateful to the noble Lord, Lord McKenzie, for his comments and his point that, while we may differ on the underlying principles associated with the order, he agrees with us on the need for accuracy and, therefore, the importance of making the order.

The noble Lord raised a few questions which I will seek to address. He asked whether the order was retrospective and I can confirm that it is not. On Articles 2 to 5, he asked whether there had been any problems related to these inaccuracies being in place. We are certainly not aware of any reported problems, losses or errors on the part of local government due to the issues addressed by these articles. These are things which we see are inaccurate and need to be changed, but we are not doing them because we have had things reported to us as problems which need to be taken care of. The noble Lord also asked about double counting. Based on the information that I have given, I can confirm that the concern that he raises would not arise from the changes we are making.

Let me add a few more points to reassure the noble Lord. We are making the amendment in Article 3 because payments made by billing authorities to precepting bodies are sometimes subject to revision during the year, which could involve the precepting body making a payment back to the billing authority. The article requires major precepting bodies to take into account any estimate they make of such payments.

The noble Lord asked whether Article 5 would affect the basic amount of council tax calculations. The answer is no. There was, as I said, a drafting error when the provisions were first produced, so it is right to make that change; it is clearly inappropriate for them to remain in place.

The noble Lord also gave his assessment of what Article 7 meant, which is that it concerns a process issue, and asked whether his understanding of it was correct. He is absolutely correct. This is about process and about making sure that the Greater London Authority is acting in line with all local authorities in the way that it is required to set its council tax and consult its electorate. The order will make sure that, if it is necessary for the authority to hold a referendum because its budget is excessive, it can both do that and introduce a lower council tax rate should the referendum not support the excessive council tax increase. I assure the noble Lord that this is purely about process, and I hope that we will ensure that the situation that the GLA inadvertently found itself in is not repeated. I think that I have covered all the issues raised by the noble Lord.

[Lord McKenzie of Luton]

I am grateful for those further explanations. I do not propose to prolong this, but perhaps I might come back to Articles 2 and 5, which deal with drafting points. My question is: in respect of prior or current periods, were calculations done on the basis of the legislation as it is before the amendment, or did they anticipate the drafting errors and were therefore done on what we would now call the correct basis? If it was the latter, all well and good; if it was the former, I wonder what the implications of that are.

[Baroness Stowell of Beeston]

Yes, I can confirm that they were operating in line with these amendments: they have not been operating outside of the requirements of the Act.