COMMITTEE FOR THE ENVIRONMENT

OFFICIAL REPORT

(Hansard)

Departmental Briefing on Local Government (Finance) Bill

18 September 2008

Members present for all or part of the proceedings:
Mr Patsy McGlone (Chairperson)
Mr Cathal Boylan (Deputy Chairperson)
Mr Billy Armstrong
Mr Roy Beggs
Mr Trevor Clarke
Mr David Ford
Mr Tommy Gallagher
Mr Alastair Ross
Mr Peter Weir

Witnesses:
Ms Julie Broadway )
Ms Marie Finnegan ) Department of the Environment
Mr Ivan Gregg )
Mr Ian Maye )

The Chairperson:
The next item is a briefing on the draft local government (finance) Bill. On 17 June 2008, the Minister of the Environment, Sammy Wilson, notified the Committee of his intention to bring forward a Bill, subject to the agreement of the Executive, to deal with the modernisation of local government finance, councillors’ remuneration, the introduction of a severance scheme for councillors, the creation of transition committees, and the introduction of controls over council borrowing, disposals, contracts and the application of capital receipts and reserves prior to reorganisation.

An accompanying policy paper requested that the Committee note the policy content and drafting of the proposed Bill, and the Department’s intention to consult on the policy and draft Bill simultaneously. A date for introduction was not provided, but the Department confirmed that the Bill will not proceed by accelerated passage.

The Minister informed the Committee by letter that he is considering the possibility of moving the enabling provisions regarding the timing of the proposed severance scheme and the introduction of transition committees into the local government contracts and compulsory purchase Bill. The Minister has not made a final decision on the matter.

Committee members have been provided with a copy of the local government (finance) Bill policy paper, and a copy of a letter from the Minister, Mr Sammy Wilson, dated 13 July 2008, which provided clarification on Assembly procedure for the Bill. Departmental briefing notes are included.

Ms Julie Broadway (Department of the Environment):

The main aims of the proposed local government (finance) Bill will be to modernise the legislative framework for financial management by district councils, to enable the Department to make severance arrangements for councillors, and to introduce preliminary provisions to assist with the reorganisation of local government from 26 to 11 district councils.

The proposed Bill will cover four main areas. I will deal with local government finance provisions first.

Most of the legislative framework for local government finance has been in place for more than 30 years and requires amendment in order to bring it up to date and in line with current best practice. District councils in Northern Ireland are subject to departmental controls, for example they need to get departmental approval before borrowing, applying capital receipts and applying sums to capital, or renewal and repairs, funds. The proposed Bill will make provision to relax some of the current departmental controls, thereby enabling district councils to manage their financial affairs to best effect on behalf of ratepayers.

That will align the framework of local government finance in Northern Ireland with the most appropriate and modern finance practices elsewhere in the UK. The proposed Bill will introduce a prudential regime for capital finance, enabling councils to decide prudent and affordable levels of debt, in line with guidance produced by the Chartered Institute of Public Finance and Accounting. It will extend to all Departments the power to pay grants in relation to their areas of responsibility, rather than just to the Department of the Environment, which is the case at present.

The Bill will make provision in respect of councillors’ remuneration and severance. A councillors’ remuneration working group was established by a previous Environment Minister in 2005, and it made its recommendations in June 2006. Those included setting up an independent remuneration panel to consider the system, and level, of allowances payable to councillors.

Furthermore, the working group recommended the introduction of severance arrangements for councillors. It is proposed that the legislation should implement those recommendations by providing enabling powers for the Department to establish the remuneration panel and to make provision for severance arrangements for councillors who do not stand for re-election. The Department intends to issue a more detailed paper on severance by the end of the year.

The Bill will make preliminary arrangements for restructuring local government. In the period leading up to reorganisation, it is important to introduce controls on specific financial commitments by existing councils, so that the new district councils do not inherit unreasonable financial commitments from the date of reorganisation. The aim is to prevent an existing council from binding a new council to sizeable, or long-term, contracts or loan arrangements, or from disposing of land, property or capital receipts and reserves without referral to the other council or councils with which it will join to make a new council.

It is proposed that the legislation should require an existing council to obtain written consent from all councils due to join with it in the formation of a new local government district before entering into any of the above transactions that exceed specified financial limits. Departmental officials are in the process of developing a policy in that regard.

In addition, it is proposed that the Bill should require existing councils that are due to amalgamate in the formation of a new district council to form joint committees — known as transition committees — to prepare for the introduction of the new councils. The Bill will include an enabling power for the Department to make subordinate legislation to specify the functions and powers of the transition committees.

I now turn to the timetable for the local government (finance) Bill. We currently await the Executive’s agreement to the policy proposals, and its permission to proceed with drafting the Bill. Subject to the Executive’s approval, we plan to consult on the proposals and draft legislation at the end of 2008 and the beginning of 2009. The legislation must come into operation at the beginning of a financial year, and it is anticipated that that will be April 2010.

As the Chairperson mentioned, it is likely that the severance and councillors’ remuneration provisions, the transition committee provisions, and the controls on council finances in the run-up to reorganisation will be moved into the local government (contracts and compulsory purchase) Bill before its introduction to the Assembly. That would ensure that the provisions are introduced as soon as possible. They are not being moved into the local government (contracts and compulsory purchase) Bill at present because the consultation document on the Bill has already been drafted and we do not want to hold up the consultation process. However, the provisions will have been consulted on before they are moved into contracts legislation.

Mr Weir:
In discussing the local government (finance) Bill — and, in particular, transition committees — I declare an interest as a member of the policy development panel on governance.

I presume that the independent panel will advise on the level of councillors’ remuneration allowance and on the severance scheme after 2011. There would not be much point in that panel being set up to look at remuneration provisions before 2011.

Mr Ian Maye (Department of the Environment):
The Minister’s intention is to establish the committee in the run-up to 2011, so that it can provide proposals for remuneration.

Mr Weir:
I presume that severance will be dealt with separately and not by that panel because it would need to be done a lot more quickly.

I appreciate that we are broadly discussing enabling powers for transition committees to be formed by councils.

Perhaps a definitive decision has not yet been taken; however, the powers of the transition committees will be dependent upon the attitude to a shadow period. Has the Department come to a definitive view on whether there will be a post-election shadow period? If it has decided that there will not, the powers of the transition committees will have to be fairly strong to deal with such issues as the appointment of chief executives, staffing issues, and a range of other matters.

Mr Maye:
The Minister has not yet reached a firm view. It is a cross-cutting issue, so he will have to take his firm view to the Executive to seek their agreement on whether there should be a shadow period. There have been discussions in the strategic leadership board on the issue. At its last meeting, the board agreed that it would commission a paper jointly prepared by the Northern Ireland Local Government Association (NILGA) and departmental officials to explore the pros and cons of a shadow period. That paper is due to be considered at the next meeting of the strategic leadership board on 3 October 2008.

The Minister’s view will be informed by that paper and by the discussion that flows from it. He will then reach a view on whether there should be a shadow period, and engage, as necessary, with others to bring that view to the Executive.

Mr Weir:
I know that enabling powers have been given, but before anything was put in place as regards severance — either negotiations or discussions with the representative bodies in particular — from a councillor’s point of view, the body that played the biggest role in that regard is probably the NAC. Is the intention to hold some level of discussion with that body beforehand?

Mr Maye:
The Minister already met the NAC to discuss those issues. He assured the NAC that he would work with it to draw up detailed proposals and to consult widely on those.

Mr Weir:
I was intrigued by the reference to the control mechanisms in relation to capital receipts. I understand — and it is justified — that there is a level of constraint on councils to ensure that they do not take a short-sighted view and attempt to get their money’s worth, sell assets or commit to various capital projects.

I also understand that there is a need to consult with the neighbouring councils that will form that body. Will the Department have any mechanism to examine whether obtained written consent is reasonable? There could be a situation in which there are two councils, with one council having a particular capital project in mind. The neighbouring council might not be keen on spending that amount of money, and it will refuse. That project could be frivolous, or it could be something that is very much in the public interest. Is there any check or balance to ensure that a council cannot unreasonably block the decisions of other councils’ on that basis? Will there be any mechanism — potentially from the DOE or some sort of appeal mechanism from the council — either in relation to the sale of an asset or the building of it to ensure that —

The Chairperson:
If I could come in on that point, Peter. That will become an interesting area because if a transition body is making a decision in a shadow period, a new council could come in and try to unravel that decision, depending on that council’s priorities are. I am intrigued by that.

Before you answer, I saw that Mr Gallagher indicated that he sought clarification on an earlier issue.

Mr Gallagher:
I am afraid that I do not seek clarification. I will make a comment on how messy the approach of the Department is in relation to the arrangements. Prior to 3 July 2008, Minister Arlene Foster came to the Committee and said that there would be no shadow councils. She also said that in the Assembly. On 3 July 2008, the successor to the post, Sammy Wilson, came to the Committee with Stephen Peover. Mr Peover said that there would be no shadow year; instead there would be formal transitional committees. That was his wording.

There are significant issues to be taken forward either in shadow or transitional committee form, preferably in shadow form, if a serious attempt is to be made to exercise democratic control in relation to local government in the future.

The Department today tells the Committee that it does not know whether there will be shadow committees. In fact, the witnesses have made it clear that the Department is again rethinking whether to form shadow or transitional committees. Therefore, it is disappointing that, after all this time — and when the public feels there is not much Assembly business time to waste — we are again in the situation where the Department cannot make up its mind.

Mr Maye:
I will respond to that comment first. It is fair to say that the position of the current and the previous Ministers was that they were minded not to have a shadow period. However, in discussion with the sector, through the strategic leadership board and with the parties, it was realised that significant issues had to be addressed before a final and firm decision was taken.

The decision on whether to permit a shadow period will have an impact on the powers and responsibilities of the transitional committees. The Department’s view, shared by the local government sector, is that transitional committees will be needed. However, the precise roles, responsibilities and powers of those committees will flow from the decision on whether to have a shadow period.

Because all of the Department’s plans and preparations flow from that political decision, it is something that must be tied down quickly. It is, therefore, something that the Department and its Minister want to address as soon as possible. However, the Minister wants to work with the sector to ensure that everyone understands the consequences of whatever decision is reached.

The Chairperson:
Mr Weir raised several points.

Ms Broadway:
I would like to return to the point about checks and balances in relation to the controls. The policy is not full developed on that. We can take those points onboard for consideration.

Mr Weir:
We must have a mechanism that enables an appeal to the Department in cases involving an unreasonable refusal of written consent.

The Chairperson:
Does that cover everything that you raised, Peter?

Mr Weir:
The witnesses have covered most of the points in their answers.

Mr Ford:
I want to follow through on some of those points, because it seems to me that there are more gaps than detail. I am not blaming the witnesses because there are unknown factors, but it is not satisfactory to be consulted on a Bill in which it is admitted that the issue of a transitional committee is not dealt with in a clear manner.

The Minister says nothing in paragraphs 29 and 30 of his memo to the Committee about whether it is planned to have a body that would liaise for a general chat now and again about how things might go; or whether, in the absence of a shadow period, it could be given quite wide-ranging powers. In that context, it is possible that every member of the transitional committee might retire or fail to be elected to the new body. It is a relatively new concept in these islands that anybody should be granted the power to bind their successors in such a way.

Specifically, on severance pay, in your submission you promised a paper by the end of the year. There was also talk of moving the issue of severance pay into the local government (contracts and compulsory purchase) Bill. Given that the rest of the Bill will be subject to Executive approval, which may take some time; is an end-of-the-year timescale a reasonable one in which to make those kind of decisions?

Ms Broadway:
The Bill will contain an enabling provision on severance, and the detail will be in regulations. In order to develop a severance scheme, we propose that the detail go out to consultation by the end of the year.

Mr Ford:
That will get you off the hook for the next few months, but the detail of the severance scheme will also require proper consultation — even if it is secondary legislation. The problems of this autumn may be solved by leaving everything to secondary legislation, but it will do nothing to advance the course of local government reform, if we are stuck in that position.

Mr Maye:
It is our intention to consult on the detail of a severance scheme while the Bill’s provisions are brought before the Assembly, thereby informing the Committee and the Assembly, as a whole, of the detail of the proposals while they consider the broad enabling provisions of the Bill.

Our Minister has taken that view in consultation with all the political parties. The broad intention is to ensure that a fully fledged severance scheme is in place as early as possible — probably in early summer or late autumn — in 2009. Certainly, that scheme should be available from then. Meanwhile, discussions among the NAC, the political parties, and the strategic leadership board continue.

Mr Boylan:
You talked about a severance scheme for councillors who opt not to stand for re-election. From a personal perspective, would the severance scheme also cover councillors who decide to co-opt for whatever reason? If so, will you clarify when that might happen?

The Chairperson:
Are we trying to ….? [Laughter.]

Mr Boylan:
You do not have to answer that last question.

Will the severance scheme cover all elected representatives who, for one reason or another, may need to step down or to be co-opted?

Mr Maye:
The Minister has opened discussions on the issue of co-option with the Secretary of State; it is up to the Northern Ireland Office and the Secretary of State to decide whether to make legislation pertaining to that. Those discussions are at an early stage and have not yet reached fruition. Broadly speaking, the Minister intends to have the necessary arrangements for co-option, whatever they may be, to be put in place at the same time as the severance scheme is launched, so that the two work hand-in-hand.

Mr Boylan:
Will you ensure that any remuneration dates back to 2005, Chairperson? [Laughter.]

The Chairperson:
I see what you are getting at.

Those among us who are councillors will know that it takes only one objection to a member’s being co-opted to scupper the process and to put the decision to a by-election, which brings with it associated difficulties — not necessarily the cost to ratepayers. The legislation should address that key area by ensuring a smooth transition of members.

Ms Broadway:
The Minister will discuss that issue with NIO, which governs the legislation required to address that issue.

Mr Gallagher:
I want to return to the issue of the timetables for the two Bills. You said that the local government (contracts and compulsory purchase) Bill must come before the Assembly in February 2009. You also said that the local government (finance) Bill — which provides for the formation, functions and powers of transition committees — will go out to consultation in late 2008 or early 2009. Towards the end of your presentation, Julie, you said that parts of the local government (finance) Bill may be incorporated into to the local government (contracts and compulsory purchase) Bill.

I think that the parts of the local government (finance) Bill to which you referred relate to transition committees. Therefore, as Mr Ford said, it is a new concept to have councils going out of business and making all the decisions for their successors who have yet to be elected. As it is such a complicated and detailed matter, it is not very satisfactory, at the eleventh hour, to start piling detailed matters from one Bill into another Bill that is before the Assembly.

We know how these things work. There would be very little time for any discussion about the matter. There may be a consultation period, but it is unsatisfactory for the Department to take short cuts when making serious business decisions, which will have huge implications for the way in which local government and their workers, including those in the most senior positions, operate in the future. Yet, you are suggesting that that is what the Department may do.

Mr Maye:
Perhaps it would be best if I explain why the Minister feels that such action might be necessary. His views were not formed by a discussion with his departmental officials. He has explored with us the feasibility of moving certain provisions on severance and transition committees across to the local government (contracts and compulsory purchase) Bill, because his party colleagues and other political parties made a request for a severance scheme to be put in place at the earliest possible date in the run-up to the creation of the new councils in 2011. That is why he asked us to keep that possibility open and to ensure that the Committee is briefed on it.

Furthermore, the Minister is receiving representations from party colleagues, from other parties and from the strategic leadership board, requesting that we should aim to have formal statutory transition committees in place as early as possible in the implementation process leading up to the creation of the new councils in 2011. Therefore, the Minister is not putting forward those proposals on a whim. They are the result of discussions with colleagues on the strategic leadership board and with other political parties. However, no firm decisions have been taken on whether that is the route that we will take. The outcome very much depends on the discussions that we have with the Committee, on discussions that the Minister has with his party colleagues and others, and also on discussions within the strategic leadership board and the policy development panels.

Mr Gallagher:
In relation to transition committees, my party colleagues on the strategic leadership board have not indicated that they want business to be done in that way. That is a fact.

Mr Maye:
The reason that we are exploring the shadow-period issue again is that those involved want to ensure that the arrangements that are put in place for transition committees are agreed by all parties and are agreed across the sector, so that we have a clear understanding from the outset about what those committees are set up to deliver and why. That view is being put forward by all the parties on the strategic leadership board. They want to ensure that we have a clear understanding as to what the committees are empowered to do.

The Chairperson:
There is more talking to be done and decisions to be taken.

Mr Maye:
A fair bit more.

The Chairperson:
Paragraph 7 of the draft policy paper relates to the proposal of a new borrowing power so that district councils will be free to raise finance for capital expenditure, without the need for prior approval from the Department. Forgive my ignorance in these financial matters, but in his draft policy paper, the Minister says:

“I also propose reserve powers for my Department to set limits on borrowings and credit but I envisage that these would only be used in exceptional circumstances.”

How do you ascertain that a council has gone beyond the limit whenever the deed is already done? If the councils are given the independence to do what they will, but at the same time the Department reserves powers to set limits on borrowing, the two do not seem to be compatible, unless there is a mechanism that I am missing, or has not been worked out yet.

Mr Maye:
We see that situation replicated in other parts of the UK and in other jurisdictions. The intention is to relax the borrowing regime to make it easier for councils to put forward their capital programmes, finance those programmes and develop their services. The reserve power is a power of final resort, where it is clear that the council has gone, or is proposing to go, well beyond the pale.

The Chairperson:
That is the issue. How is that power triggered, other than a council member saying that he or she opposes the level of borrowing and will bring the matter to the attention of the Department? The action may be too late, or it may be illegal.

Ms Marie Finnegan (Department of the Environment):
The controls that are available under the Local Government Act ( Northern Ireland) 1972 are very tight. A council requires departmental approval if it wants to borrow money to build a leisure centre, for example, or to buy a vehicle. Local authorities in GB are subject to more relaxed controls, and are left to draw up their own capital programmes. However, they must assure their ratepayers that what they are doing is affordable, prudent and sustainable. Councils in GB set their own borrowing limits. They set their capital budgets in their annual budgets, within which they must determine their borrowing limits.

That system seems to work quite well in other regions. It is backed up by the Prudential Code, which sets out benchmarks and provides guidance. We plan to mirror the GB pattern. It is new to us, but it would loosen up matters for councils and allow them to take control. The auditors would still come in at the end of the day to ensure that any borrowing, any loans were being serviced.

The Chairperson:
I am trying to get this into my head. Forgive me for drawing such an analogy, but, say, if a council turns radically left or bolshie and makes a decision — that kind of scenario —by the time the auditors arrive the decision will have been taken. It is a case of closing the stable door after the horse has bolted. I am trying to determine how such a system could work. I understand the principle and the theory, and that it will allow councils some autonomy, and some extra elbow room to make decisions without having to go back to the Department on every occasion. On the other side, what is the mechanism for allowing that reserved power to be used?

Mr Maye:
There are several mechanisms that can initiate the process. It could be a complaint from a member of the public who is concerned about a council’s spending plans, or a complaint from one or more councillors. There could be a challenge within the council on the basis of whatever new governance arrangements are agreed. Such a challenge could be submitted to the Ombudsman or to the Minister.

The Chairperson:
What I am trying to get at here is whether there is a requirement? You are expecting someone out there to have the goodwill and ability to do it themselves, the ability to look at it and decide that it is a bit through-other. Is there an onus or duty upon officers to do that?

Mr Maye:
A reporting mechanism?

The Chairperson:
I wonder whether it works that way elsewhere. It may well never have occasion to happen. However, there seems to be a concept built in here without mechanism.

Mr Maye:
We will explore what the arrangements are in England, Scotland and Wales, and find out how it is used in practice, if at all. My understanding is that it has been used very infrequently.

The Chairperson:
It will be interesting to hear when it has happened and if it has happened too late — that sort of thing.

Mr Ford:
I appreciate that the answer to this question is “I do not know”, but I ask it anyway. What exact provisions of the draft local government (finance) Bill are being considered for transfer to the local government (contracts and compulsory purchase) Bill? We understand that they include the severance payments and the transition committees, but does it also include the potential transitional financial controls?

Mr Maye:
No. At this point, consideration is limited primarily to severance provisions and possibly to the transition committee provisions as well.

The Chairperson:
There are no further questions from members. Thank you very much indeed for attending today. Undoubtedly, we will be seeing you again.