Source · Select Committees · Housing, Communities and Local Government Committee
Recommendation 6
6
Acknowledged
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Additional capital flexibilities could help local authorities during financial distress.
Conclusion
We have previously recommended that the Government widens the funding base of local authorities and grants more flexibility over local taxes and other revenue raising powers. We therefore welcome the Government’s call for views on local authority capital flexibilities and believe that additional flexibilities may play a useful role in enabling local authorities to support themselves in times of financial distress.
Government Response Summary
The government confirms it launched a call for views on local authority capital flexibilities to encourage invest-to-save activity and is considering responses. A publication is expected before the summer recess, and some financial flexibilities have been agreed with specific councils.
Paragraph Reference:
49
Government Response
Acknowledged
HM Government
Acknowledged
9. On 18 December, the Department launched a call for views to identify and develop options for the use of capital resources and borrowing to support and encourage invest-to-save activity and more flexibilities to use capitalisation without the requirement to approach Government. The options could be used to encourage and enable local authorities to invest in ways that reduce the cost of service delivery and provide more local levers to manage financial resources. In addition to the options proposed, the Department sought other ideas to be put forward, to ensure we have adequately considered all viable options. 10. The Government takes its position as the guardian of public funds seriously and there is a clear balance between providing greater freedoms to use capital resources, reserves and assets to alleviate local revenue pressures and incentivise efficiency, while avoiding creating unsustainable financial practices through misuse of flexibilities. The Department made clear that any additional flexibilities must have safeguards that are proportionate and effective at preventing misuse, while still placing decision-making at a local level. The Department is considering responses, following the close of the call for views on 31 January and will publish a response before the summer recess. 11. On 29 February, the Government published details of financial flexibilities agreed with a small number of councils that requested financial support on an exceptional basis – due to specific local issues that they are unable to manage themselves. This support is usually via a capitalisation direction, allowing revenue costs to be met through borrowing or through capital receipts, funded through asset sales. Using capital resource for revenue purposes is outside the normal rules of local authority accounting and, as such, ministers will only consider agreeing to this in exceptional circumstances. As a result of this action by Government, we anticipate that all councils will be able to set a balanced budget and continue to deliver vital services for their communities.