Local Government (Finance) Bill

Association of Local Government Finance Officers (NI) Submission to Committee Consultation

Our Ref. JC/GOK

Mr Sean McCann 
Assistant Clerk 
Environment Committee 
Room 247 
Parliament Buildings 
Stormont Estate 
BELFAST BT4 3XX

Dear Mr McCann

Local Government Finance Bill

I refer to your letter dated 30 April 2010, inviting views on the above proposed bill for consideration by the Committee for the Environment at Committee Stage. ALGFO is pleased to be given the opportunity to comment on the proposals in the Finance Bill and we trust that our comments will be taken into account when developing the final legislation .

I wish at the outset to reiterate that ALGFO welcomes the proposal to introduce a New Local Government (Finance) Bill and the opportunity to modernise the current legislative framework relating to local government finance and Councillors’ remuneration in Northern Ireland.

The proposed legislation , especially in relation to the capital finance system, aims to give greater freedom to Northern Ireland Local Authorities and ALGFO would urge that this greater freedom is not constrained through the use of regulations. ALGFO would also trust that there will be adequate consultation with Local Government when the regulations are drafted.

ALGFO would also make the case that there should be adequate legislative provision to support important new initiatives and models for service delivery in the future. This includes powers to participate in Public Private Partnerships (PPP), Public Finance Initiatives (PFI) or Local Asset Backed Vehicles (LABV). It is envisaged that these types of initiatives may be required in order for Councils to put in place arrangements for service delivery models, for example Waste Management, and to effectively manage their assets.

ALGFO would wish to make the following comments on the specific clauses of the Bill.

Clause 1(2) requires a Council to designate an officer of the Council as its Chief Financial Officer.

ALGFO welcomes the intention to separate the roles of Chief Executive and Chief Financial Officer, particularly in light of the responsibilities placed on the Chief Financial Officer in submitting a report on the robustness of the estimates of the Council (clause 4); reporting to the Council the adequacy of financial reserves (Clause 6); and reviewing the Council’s affordable borrowing limit (Clause 13).

It is noted that the Department proposes to take this forward in the forthcoming Local Government (Re-Organization) Bill. In the event that RPA is postponed, ALGFO understands that the Local Government (Finance) Bill would still proceed and strongly proposes that it does. In this eventuality, ALGFO would strongly advocate that due to the important role of the Chief Financial Officer, provision should then be made in the Local Government (Finance) Bill to separate the role of Chief Executive and Chief Financial Officer.

Clause 7 makes provision for reserves specified in regulations under clause 6(1) to be designated controlled reserves, with a required minimum balance at the end of the financial year. The chief financial officer must report to the council on the reasons for a controlled reserve not achieving the minimum level, and any action considered necessary to prevent a recurrence in the following year.

ALGFO would advocate that in the spirit of financial freedom no reserves should be designated controlled reserves, as is the case in the GB regulations that derived from the Local Government Act 2003.

It should be noted that Clause 7 if exercised would also be divergent from the view of CIPFA…..

“CIPFA and the Local Authority Accounting Panel do not accept that a case for introducing a generally applicable minimum level of reserves has been made. Local authorities, on the advice of their chief finance officers, should make their own judgements on such matters taking into account all the relevant local circumstances. Such circumstances vary. A well-managed authority, for example, with a prudent approach to budgeting should be able to operate with a level of general reserves appropriate for the risks (both internal and external) to which it is exposed”

[ref: LAAP Bulletin 77, Local Authority Reserves and Balances]

ALGFO would therefore contend that the recent guidance from DOE issued in December 2009 with regard to minimum balances for the District Fund, which advised that Councils should plan for a District Fund balance above 5% as part of their Rates Estimates should be sufficient. This would fulfill the objective of clause 6(1) of the draft Finance Bill without designating it as a controlled reserve. Councils would also be expected to follow guidance given in the Prudential Code for capital finance.

Clause 22 enables the Department to make regulations about the use of capital receipts.

ALGFO would acknowledge the greater flexibility in the bill for the use of capital receipts and would welcome the removal of the requirement for capital receipts to be applied in the first instance against any money borrowed by the Council for the purposes of acquiring that asset, as sometimes this could result in significant financial penalties for early redemption.

Clause 27 makes provision for the Department to make a rates support grant to district councils for each financial year.

ALGFO would advocate that the statutory formula for the rates support grant needs to be reviewed post RPA to confirm that it continues to meet its objectives, especially in light of the establishment of new local authorities with new functions and functions that will transfer from central to local government.

Furthermore, it is important that the rates support grant be adequately resourced and ring fenced to prevent cuts such as occurred this year when the General Grant (Resources) budget was cut by 5% impacting on the poorest Councils only.

Clause 35 gives the Department power to make regulations for the establishment of an independent panel to advise the Department on payments to Councilors.

ALGFO welcomes the establishment of an independent panel to advise the Department on payments to Councilors to bring Northern Ireland into line with the rest of the United Kingdom, where independent panels already exist to consider the level and system of Councilors’ allowances.

Clause 37 allows a district council to make payments for any purpose which in its opinion are in the interests of, and will bring direct benefit to, the council, its district or any part of its district, or the inhabitants of the district or any part of its district.

ALGFO notes that it is proposed to include the general power of well-being in the forthcoming Local Government (Reorganization) Bill and that it is considered necessary to retain this provision until such time as that Bill comes into operation. ALGFO would accept this but request in the meantime that the current limits on expenditure for special purposes be reviewed as they are too low.

Yours sincerely

Joe Campbell, Chairperson