Local Audit and Accountability Bill [HL]

Lord Smith of Leigh Excerpts

Wednesday 26th June 2013 Grand Committee

[Lord Beecham]

My Lords, I am a vice-president of the LGA but I am not sure that I will retain that position after what I have to say. I am afraid that I do not entirely concur with the sentiments and positions taken by the two noble Lords who have spoken thus far. I said in a previous Committee sitting that I had a concern that, although the Audit Commission was, in fairness, asked by the previous Government to over-regulate, overprescribe and over-report, it nevertheless performed a valuable role in looking particularly at the interface between services and the comparisons between different types of authority. Actually that information, contrary to what the noble Earl, Lord Lytton, said, should inform local debate. It does not supplant it. It should help to facilitate the citizens to hold their local authority to account, because they must have some comparative data to see how well or badly they are doing in relation to other authorities. That will be one of the things that we will miss. I express a hope—or, put another way, a fear—that with only six value-for-money studies to be carried out by the NAO, which I understand is the position, we would lose that independent assessment of what local authorities are doing.

I am a great supporter of peer review and of the work that the LGA has done in promoting improvements across the sector, and it has done very well in that regard, but when it comes to an objective assessment, the perception will be that that is an in-house job. It is better in my view that there should be a role for a body like the Audit Commission was—and currently still is, temporarily—or the National Audit Office will be. That is something that this amendment would very much restrict. Yet the formulation here depends on a division of resources, and whence comes the money? Of course, increasingly we will see national organisations, be it in the health service or other bodies—the Chancellor again mentioned what was called “total place” and is now called whole community budgeting—

[Lord Smith of Leigh]

Whole place.

[Lord Beecham]

Yes, whole place. It is playing with words, and of course Labour words such as “total” are not acceptable. Within these areas there will of course be collaboration, and the proportion of funding will vary considerably. For example, in public health, less than 50% of government money will be coming in, so the Audit Commission would presumably be prohibited from taking a look at the effectiveness of that. It is not an audit job in that sense, but it is particularly desirable that it should address the issues of effectiveness and outcome, not purely in financial terms but across the piece as well, and that in itself should facilitate the work that the LGA and individual local authorities are doing, particularly in their scrutiny functions, to see how they are faring relative to others, and for that information to be communicated to the people who elect them. So I certainly could not support these amendments. I understand what the noble Lords are saying, but I think that a mission creep has overtaken their amendments as well. They were going too far in the interests of local democracy and the effectiveness of local government.

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[Lord Beecham]

My Lords, with the leave of the Committee, I will speak to both this amendment and the following one, Amendment 19BC, since they both relate to council tax referendums, which is a highly contentious issue—to use the noble Baroness’s phrase—about which no doubt several authorities would be only too pleased to be able to lobby. I do not think a telephone call would suffice to deal with this issue.

Amendment 19BB deals with a particularly objectionable part of the Government’s proposals. I remind your Lordships that the ad hoc committee on the Bill had no opportunity of considering these amendments, or indeed the code of practice that we have just discussed, because these matters came very late in the day and were added to the Bill as a convenient vehicle for the Secretary of State’s obsessions, to which I have already referred. In terms of the council tax referendum, what is particularly objectionable is that there is a potentially retrospective effect here, because decisions already taken in the past can be used as the basis for requiring a referendum in the future. That is particularly objectionable where the decisions might have been taken by a body that is not actually the individual local authority. If it is a precepting authority or, as this Bill is seeking to require, a levying authority, that is even more objectionable. There is no justification whatever for this element of retrospectivity and I hope that on reflection the Government will see that it is a departure from normal practice and one that cannot be justified except in the most exceptional circumstances. In my submission these simply do not arise.

Amendment 19BC acknowledges—as do both amendments—the fact that we are living with a provision about council tax referendums. Many of us opposed them when they were inserted into what is now the Local Government Act but they are there and we have to live with that. What this amendment deals with is the position that might arise as a result of not simply a decision in the past but a decision in the past with a continuing effect on expenditure. So, for example there are authorities—I understand that Leeds has raised this—with city deals that have entered arrangements which would require expenditure over a period which, if the current referendum provision is applied, might severely impact on the schemes to which the Government are party.

The city deal, which one welcomes, is an opportunity for the Government, local government and private sector partners to work together. It involves a commitment of expenditure on all parts. If such decisions are not to be thwarted, given the ever tightening situation affecting local authorities, at the very least the Government should be making transitional provision to ensure that decisions fairly recently arrived at, but which will have a continuing impact, will not merely be on the finances but on the economic state of the area with which these arrangements are very largely concerned. The Government’s proposed changes could cause very severe problems, whether they are over transport—which I think was the case in Leeds—or about city deals such as that in which my own authority has been involved. No doubt we shall hear from my noble friend Lord Smith about Greater Manchester Combined Authority and its arrangements.

Referendums are both costly and unpredictable in their outcome. You cannot have that situation when you are dealing with third parties and have entered into arrangements that could be disrupted as a result of the change which is now being proposed. I think that the Government should take both of these matters back. The first point is really a matter of principle about retrospective legislation and requirements. The second is to deal with what appears potentially to be a significant issue for a number of authorities which are endeavouring to do their best in many respects to work with government on agreed programmes that could be rendered difficult—no doubt unintended—as a result of the provisions. I beg to move.

[Lord Smith of Leigh]

My Lords, before I speak on this matter I shall declare my interests. I am a vice-president of the LGA and also, as my noble friend indicated, the chairman of the Greater Manchester Combined Authority. Greater Manchester is one of the areas where the Secretary of State was somewhat upset by the level of council tax rises which were entirely consistent with the law as it stood. Before I begin I would like to quote from a document published by DCLG on 12 January 2012 on council tax referendums.

“The definition of ‘relevant basic amount of council tax’ . . . is essentially an adjusted Band D amount which is derived from a calculation of the authority’s basic amount of council tax. This amount is modified by omitting local precepts issued to or anticipated by a local authority, and levies issued to or anticipated by an authority, from the calculation. This is to ensure that increases in levies, over which authorities have minimal or no control, are not a factor in triggering a council tax referendum”.

Those were the words of the department in issuing guidance on council tax. As my noble friend indicated, levies come in to local authorities in a number of different guises. In Greater Manchester last year, two particular things impacted on the levy situation. First, not quite like Leeds, we had an agreement between authorities on transport expenditure, which will put a 3% increase above the day-to-day spending needs of the transport authority to invest in transport infrastructure. That programme began in 2009 with the commitment of the 10 authorities in Greater Manchester—which took some getting, I assure you, but we got there—to put that money in for six years. When we went to the Government and negotiated our city deal—we were the first conurbation to get a city deal—this transport expenditure was seized upon by the Government as an innovative way forward for local authority spending. It has taken some time, but we have devised an earn-back model and have now agreed that the Treasury will reallocate some of the increased taxation back to Greater Manchester. We will be able to spend that money on future investment. It is a good deal, and I understand that it will be part of the announcement on the public spending review.

Last year, the increase for the Greater Manchester transport levy was 3.6%. In other words, it was 0.6% for day-to-day transport needs—the cost of fuel and other things; this meant that there were big impacts on costs. The other 3% was that commitment made back in 2009, which continues to roll forward in future years—a contribution to investment and transport. We can prove that the transport investment is taking place. If noble Lords go to Manchester, they will see that the new Metrolink system is up and running, and new bus ways beginning in my area. There are all sorts of things going on which meet our commitment, and government commitments, to reduce greenhouse gases and all sorts of things. We thought that we would agree that with the Government but, obviously, they pushed up the levy.

I step back slightly from the second impact because Wigan is not part of the Greater Manchester waste disposal authority. The waste disposal authority signed a new PFI deal a couple of years ago because it did not have the facilities to deal with modern waste and needed expenditure on a new facility. So often with PFI deals, the early years have a really high cost which inevitably falls over future years. The effect on the waste disposal levy was 4.5%; obviously a very big increase for those authorities. A number of authorities in Greater Manchester therefore raised their council tax by more than the 2%, which the Secretary of State said would trigger a referendum. This was entirely legitimate within the rules of council tax referendums as they then were. In fact, the ironic thing was that a number of authorities, including those which seemed to have the biggest increase, actually reduced the proportion of the council tax take for their own services to meet the needs of external levies. That means that if this clause goes through, then the threat of the Secretary of State—the revenge of Eric Pickles—will be that any authority which raised its council tax by, say, 3.5% while the guideline figure remained at 2% can only increase its council tax next year by 0.5%. The rules have changed.

Who knows what would have happened if the council had known that that was the situation last year? Different decisions might have been made. How can we predict the mind of the Secretary of State and the mind of the department when it wants to change the rules in this manner? It is grossly unfair that some authorities, in addition to the awful amount of cuts that they are taking on board, will have to make savage cutbacks in services to cope with this part of Clause 39. This is bad and retrospective legislation and the Committee should think very carefully before it commits to Clause 39.

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[Lord Tope]

I begin by reassuring the noble Earl, Lord Lytton, that he may be in a minority of two. I share his concerns and would ask the Minister a question for clarification. Is it the case that, if a referendum on what is deemed to be an excessive levy is lost, that so-called excessive levy will still apply but the local council will have to cut its own budget in order to levy an appropriate council tax to meet the levy demand? Noble Lords opposite are saying yes; that is clearly the answer I am going to get and I want it to be clear and specific on the record. If so, we need to understand the implications of what we are doing. I can pick many examples, but flood defences might be appropriate. One can well understand where a drainage board wishes to put in a so-called excessive levy for particular work in a particular area and the public at large, who pay the council tax, may well feel that they do not want to contribute to that. As others have said, it can lead to unforeseen and undesirable consequences.

In addition to supporting the noble Earl, I also rise because my noble friend Lady Eaton is unable to be here today; she is at the Council of Europe. She has asked me to raise an issue in respect of the West Yorkshire transport fund. I will read into the record the contents of an e-mail she has received from the director of finance of the City of Bradford:

“You asked about the implications of the proposal that rises in levies, as well as Council Tax levels, could trigger a referendum.

The most significant implication for Bradford relates to current plans across the Leeds City Region to create a West Yorkshire Transport Fund. This fund is planned to grow to a total of £1bn by 2025/26 to pay for investment in the transport infrastructure. It will comprise, roughly, £150m from Dept for Transport, £100m from Local Transport Plan, £750m from the participating Councils, each of whom will contribute an increasing amount each year, by way of a levy. The current plan means that Bradford Council would put in £1.2m in Year 1, £2.4m in Year 2, £3.6m in Year 3 etc. The total investment over the period to 2025/26 from Bradford would be £161m.

It’s worth pointing out that the Transport Fund is a central plan in the Leeds City Deal, a key part of the Government's regional policy. While the Transport Fund is not the only element, it provides the underpinning infrastructure investment on which other investment activity builds.

Now, before the proposal to treat the levy by the same referendum rules as Council Tax, this plan held good. For citizens, the plan did of course mean that, while the Council Tax element of their bill would be restrained at below 2%, they would pay an increasing amount for transport investment. (And leaving aside the referendum issue, the decision to create and sustain the Fund ranks among the most significant decisions in the next budgeting rounds for participating Councils.)

The Bill’s proposal means that the Transport Fund can only be afforded in its current form if offsetting reductions are made across other services in the Council. So, by Year 3, for example, savings in other services would need to be roughly £2.4m higher than otherwise, for Bradford to afford its currently planned contribution of £3.6m in that year.

From a financial perspective, the proposal means … If investment in transport remains a priority, and the planned regional-level investment makes sense, there is now much sharper trade-off between transport and other choices. … If investment in transport has to be significantly reined in to satisfy the ‘below 2% rise’ rule, the investment returns will be significantly curtailed, with the reduced economic impact (which in turn would expect to feed through to a weaker taxation base of citizens in work and firms in business paying rates) ... For individual citizens/households, a lower aggregate taxation burden than they otherwise would face”.

That ends the quote from the director of finance at the City of Bradford, which I undertook to raise today. I hope the Minister is able to respond, if not today then later, particularly to the noble Baroness, Lady Eaton, on whose behalf I have raised this.

[Lord Smith of Leigh]

My Lords, I agree with the noble Earl about the problems of the electoral cycle. It was a bit disappointing that this is the fallow year for metropolitan authorities so we did not have elections. Noble Lords may recall that Wigan won the FA Cup and the feel-good factor was particularly good; obviously there have been fantastic comments on social media, but unfortunately we did not have any local elections to take advantage of that.

It was really interesting that the noble Lord, Lord Tope, read out the views of the director of finance from Bradford. The answer that the Minister gave to the earlier amendment was that, under Clause 39, the current provisions of the Localism Act, which define the relevant basic amount of council tax increase, will change from being what the council itself sets to include levies and other charges. Therefore, decisions that were entirely within the law as it stood earlier this year in March will be affected.

We had a debate earlier on the council tax referendum principle. The Government say they are not capping but actually they are. In my long experience of local government, I cannot believe that once the Secretary of State sets out the guidelines to which a referendum will apply, any local authority would want to set an amount of council tax increase above that guideline. If it does, it is on to an absolute loser. There is no way it will win a referendum on that. Which council tax payer is going to vote for higher council tax? They are not asking, “What services are being cut?”. It is a simple referendum on the increase in council tax and nobody wants it. The Secretary of State may want and need that part of it but effectively it is capping local authorities.

Capping does not always have the longer-term political impact that Governments may think. When capping was first introduced, my authority was one of the 22 Labour authorities that were all capped at once; no Conservative authorities were. We set a budget, but the Government said we could not and that we had to reset it and make significant cuts. When we came to the elections that May, we had a really big increase in our majority, so it did not have any negative political impact. I have great sympathy with the noble Earl’s position. Do we need this clause? I do not think so.

[Lord Beecham]

My Lords, I shall be brief. The position is a curious one in relation to what the Government regard as an area of excessive increases and what they regard as something else. An increase of more than 2% in council tax is excessive but an increase of 5.8% in social housing rents is acceptable. Indeed, the Chancellor has said today that social rents will increase by CPI plus 1% a year for virtually a decade. That actually will be rather less than the increases imposed in this past year but whichever way you look at it, it means that what is an unacceptable increase for council tax payers is well below what social housing tenants will be expected to pay. It is an interesting anomaly.

However, on the referendum point, it should be noted that three sets of organisations are involved in local government finance at the local level—the council, the levying bodies and the precepting bodies such as police commissioners. Several police commissioners increased their levies by significantly more than the 2% figure. That was acceptable because it did not raise the overall increase significantly. On the other hand, technically, their regime is rather different and rather more generous in terms of potential increases. However, if they breach the limit for precepting authorities, I understand that they would have to have a referendum. Therefore, there are two referendum systems here, as it were. It is odd that there are in effect two external bodies—some bodies, admittedly, comprise a combination of local authorities, but many do not—which can, by means of a levy, potentially force the council to have a referendum on its overall council tax levy, whereas precepting authorities are in a different category. That anomaly certainly raises questions to which we may want to return on Report.

I anticipate that the noble Earl will not seek to test the opinion of the Committee tonight. Given the fact that referendums are now, unfortunately, part of the system, despite the opposition of many of us when the Local Government Bill went through, I am not sure that we will get very far in that regard on Report. However, in this curious area of anomalous situations and differential rates of what is acceptable and what is not, we might at least provoke the Government into thinking about the system they are creating and the degree to which it is being made more elaborate, complex and, ultimately, less accountable to people with every successive announcement.