Clause 25
Local Government and Public Involvement in Health Bill
9:30 am

Robert Syms (Shadow Minister (Local Government), Communities and Local Government; Poole, Conservative)

It is a pleasure to serve under your chairmanship, Mr. Chope. The clause deal with directions under clause 24, and mentions financial reserves. Will the Minister define financial reserves? Does it include schools balances?

Phil Woolas (Minister of State (Local Government & Community Cohesion), Department for Communities and Local Government; Oldham East and Saddleworth, Labour)

While I wait for inspiration, perhapsI should explain what the clause seeks to do. The explanatory notes say that clause 25 is consequential on clause 24 and relates directly to it. It provides thata direction under clause 24 may provide that, if an authority seeks to apply financial reserves to reduce its budget requirement for council tax purposes, consent is not required in relation to financial reserves

“of a description specified in the direction”.

Likewise, the direction may provide that consent is unnecessary for application of financial reserves below a certain amount.

Hon. Members will be aware that school reserves are reserves that belong to the school—that has been the case since the legislative changes made by the House. Although the calculation of balances and assets includes school reserves, those reserves are ring-fenced, so they cannot be accessed for council tax purposes or, indeed, other purposes outside the remit of the school. The reason for inclusion is that school reserves are part of public sector assets and are therefore related to the public sector borrowing requirement. Many local authorities think that the situation should be otherwise, but Parliament decided that school balances should be treated in that way.

A second, related factor is that of the requirements and guidance of district auditors on what constitutes a reasonable level of reserves for local authorities, which varies between authorities, but which a direction under clause 24 cannot overturn. The Secretary of State may decide that consent is not required for, say, insurance reserves. That is because an authority might require its insurance reserves to be available for use at any time and needs to adjust them annually to reflect changing risk costs. Therefore, it might be appropriate for the authority to budget to use some of those reserves to reduce the council tax. As a consequence, it is not possible to say that all reserves are treated exactly the same. One would have to make a direction in light of the provision that has just been made.

Robert Syms (Shadow Minister (Local Government), Communities and Local Government; Poole, Conservative)

I think that I am beginning to understand what I asked. There may be various reserve funds, and some wriggle room for the local authority in termsof general day-to-day management that would presumably be approved in the order. Otherwise, the authority would have to go back to the Ministry every 10 minutes to ask, “Can we buy X or Y?” Is that how it would operate? The term that we used the other day was “financial envelope”. The Government would specify that an authority could spend a certain amount,  but for anything over that amount the authority would have to go back to the Secretary of State for permission.

Phil Woolas (Minister of State (Local Government & Community Cohesion), Department for Communities and Local Government; Oldham East and Saddleworth, Labour)

The Secretary of State would haveto take into account the overall situation of local authority reserves, and therefore of borrowing requirements, and the assessment of the individual authority. If, for example, a local authority undertook a one-off public event that required a significant amount of liability to cover it, it could reduce its reserves and liabilities accordingly. There are many other examples in which the level of reserves, or rather the guidance about the level of reserves, would change as a result of councils’ decisions.

The clause provides the Secretary of State with leeway to allow exemptions in some areas, but the general rule as laid out in previous clauses could not change. The clause means that the Secretary of State can provide that authorities do not need to seek consent to apply some particular types of financial reserves or reserves below a certain amount. Therefore, it gives some common-sense room for manoeuvre.