Clause 26 - Minimum reserves
Local Government Bill
4:15 pm
Mr John Pugh (Southport, Liberal Democrat)
I am opposed to the powers in subsections (2) and (3), which are given not to the Secretary of State, but to ''the appropriate person''. I question the need for those powers. It has long been the practice of local authorities to act carefully as regards their reserves. That is in the culture. Measures emphasise the need to do so, and district auditors continually remind local authorities of that duty. District auditors and treasurers have a right forcefully to remind councillors of the state of their reserves. That is how things stand. The issue of worrying about reserves is sufficiently at the forefront for local authorities. It is not a matter that they take up from time to time; it is a matter that anyone running a local authority concentrates on.
The new power that is given to the ''appropriate'' power represents an unwarranted interference in a local authority's activities. It is unclear what the intent is for the power. It runs, to some extent, against the democratic mandate, a point that I can illustrate from personal experience.
I had a role in setting the budget of my local authority from 1993 to 2001. It was cash-strapped, and it had an appalling rate support grant, which, I am glad to say, the Minister has done something about recently. It had heavy social service commitments, and there were continual demands from central Government to passport education, which we religiously and dutifully did. In most years, the district auditor commented on the level of reserves. In most years, the schools got all they wanted and their funds and balances remained appreciable. However, we were in no year able to set balances at the level that we wanted. We were able to set budgets that were not reckless and which were approved by the treasurer. We used other devices, such as slowing down the rate of spend on capitalisation, but we persistently had low balances, with a ratio of 5:1 between schools' balances and the local authority balances.
During that time, the electorate, confronted with what I thought was a tolerable council tax increase, rewarded those who set those budgets. Year after year, I am happy to say, the Liberal Democrat presence on the council grew. In 2001, the advice of the district auditor and treasurer were dutifully taken by my
successor who increased the balances. That went against the wishes of the local electorate because the increase in council tax was appreciable, and he promptly lost his seat.
There is a tension between democratic accountability and financial regulation, and local people can choose which way they wish to go on that. I am reluctant to give the power of setting the council's budget to the borough treasurer who will be happier the greater the balances are.
I wonder what the purpose is behind the Whitehall regulation that we are now imposing. It seems opaque. In my view, we have reserves for unexpected contingencies. There other ways in which local authorities can deal with those—slowing down the rate of spend, increasing capitalisation or even making cuts—but there are circumstances in which reserves may legitimately be reduced. The Government's reserves will reduce if we start a war in Iraq, that being the sort of occasion on which reserves are substantially reduced.
The Bill seems to say, however, not that reserves should be varied rationally and prudently—I would agree with that—but that they should be parked as dead money throughout the budget year. I am not entirely clear what will happen once a local authority has set its reserve at its budget session in March. Will it have to keep to that level all year? May it use that money at all? Is the reserve simply to be a vast morass of unutilised money right across the country? It strikes me that clause 26 is needless and meddlesome interference. Local authorities do not want it. So far as I know, CIPFA has not demanded it. It takes freedom away rather than giving it. It adds a new restriction, which the Minister has not denied, to a Bill that is supposed to be about localisation.