Mixed reaction to proposed government intervention powers
0There has been a mixed reaction to the government’s legislative plans to strengthen its intervention powers over local authority finances.
The Levelling Up and Regeneration Bill has proposed giving the government the power to issue “risk-mitigation directions”, which could include the imposition of borrowing limits or requirements to divest from specified assets.
These powers would be imposed following a “trigger event”, such as the issuing of a section 114 notice or the breaching of a “capital-risk metric” – with these metrics yet to be agreed with the sector.
Chris Tambini, president of the Society of County Treasurers, said he was supportive of the measures.
“Given the financial predicament a small number of local authorities find themselves in following decisions to take on commercial risks, I am surprised it has taken so long for these or similar measures to be introduced,” he told Room151.
Tambini, who is also the director of corporate resources for Leicestershire County Council, added: “I think the devil will be in the detail and we are pleased that DLUHC intends to work with the sector to develop the metrics that will be used. The system will need to bed in, and we hope that the powers will be used sparingly.”
Given the financial predicament a small number of local authorities find themselves in following decisions to take on commercial risks, I am surprised it has taken so long for these or similar measures to be introduced.
Capital risk metrics
The bill outlines five potential capital risk metrics: debt compared to financial resources; the proportion of investments made to generate a financial return; the proportion of debt where the counter-party is not central or local government; the amount of Minimum Revenue Provision charged; and any other metric specified by the secretary of state.
John Turnbull, president of the Society of London Treasurers and strategic director of finance and governance at Waltham Forest Council, told Room151 that the relevance of the new intervention powers would vary in the capital on the circumstances and approaches of different boroughs.
But, he added: “Generally, London treasurers can understand the reasons for the risk mitigations proposed. It would be preferable that councils do not get into difficulties in the first place and good timely auditing of accounts must have a major role to play so councils can respond to early warnings and manage the risks themselves.”
Section 151 officers are best placed to understand the finances and risks in their authority. The new powers to intervene by capping borrowing and forcing asset sales will lead to uncertainty and may well stop legitimate projects proceeding,
However, Richard Harbord, former chief executive of Boston, Richmond and Hammersmith & Fulham councils, said that, historically, intervention in a local authority had been by agreement or by request.
“I am not in favour of intervention on a whim or without pre-stated reasons. Section 151 officers are best placed to understand the finances and risks in their authority. The new powers to intervene by capping borrowing and forcing asset sales will lead to uncertainty and may well stop legitimate projects proceeding,” he said.
“This, coupled with the Public Works Loan Board (PWLB) announcement about restricting borrowing where the PWLB believes the council is at risk of not repaying, is most regrettable.”
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