Source · Select Committees · Housing, Communities and Local Government Committee
Recommendation 8
8
Acknowledged
Paragraph: 51
Limit capital funding flexibilities to invest-to-save and closely monitor uptake for unintended consequences.
Recommendation
The Government should ensure that the implications of any additional flexibilities it grants on capital funding are carefully considered. We recommend that these are limited to extending flexibilities over invest-to-save activity only. The Government must closely monitor local authorities’ uptake of these flexibilities and act quickly to work with local authorities in preventing unintended negative consequences. The use of capital funding for revenue expenditure must not become business as usual and is not a sufficient substitute for more fundamental reform of the funding system.
Government Response Summary
The government states it is considering responses to its call for views on capital flexibilities, acknowledging the need for balance to prevent unsustainable financial practices. It will publish a response before the summer recess but does not commit to the specific limitations or monitoring mechanisms requested at this stage.
Paragraph Reference:
51
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.