LGA concern over metrics to be used by Government in deciding whether to intervene in councils

The Local Government Association (LGA) has voiced “grave concern” at proposals for Government intervention in councils’ borrowing.

It said the consultation on local government capital risk metrics in the Levelling Up and Regeneration Bill included unclear data plans and risked perverse outcomes.

In its response, the LGA said the Bill would give the Secretary of State significant additional powers to review and intervene in individual councils, and to make directions such as capping borrowing or forcing the sale of specific assets.

The metrics in the consultation would be the first step in triggering intervention and it was essential that councils knew what they were being measured on and the standards and thresholds that the Government would apply.

Those proposed would “give an incomplete picture of total risk exposure as well as backstop counterparty risks to HM Treasury and other types of lenders, which may include private or foreign lenders”, the LGA said.

It said the consultation concerned how to measure the risk metrics specified in the Bill and showed “severe limitations with what has been proposed – for metrics 1 and 2 the consultation proposal is to measure something different from what is specified in the Bill”.  

The LGA said this meant that alternative metrics would be measured to those specified.

“Surely these should have been specified in the original bill and been subject to Parliamentary scrutiny rather than being introduced after the Bill has been through Parliament?” it asked.

"This is a grave concern. The Act will give current, and future, secretaries of state the potential to take significant powers to intervene in local authorities and the proposal is that the measurement of the metrics to trigger this will not follow what is in the proposed Act.”

Data to enable the calculation of the second metric - to divide investment income by net service expenditure - was not currently collected in annual data returns by the Department for Levelling Up, Housing and Communities and the LGA said this should be deferred.

“If the proposals in the consultation are followed, this could open up authorities to intervention for undertaking activities that are unrelated to the what the metric in the bill is stated to measure,” it said.

The LGA said the proposed measurements of the metrics “largely ignore income-based resources, as well as concentrating on revenue rather than capital.

“Proposals to measure expenditure net of income only will mean significant resources are excluded from consideration.”

Government proposals would give “a significantly unbalanced calculation for housing revenue account councils and is likely to make them far more likely to be subject to a trigger point [for intervention]”.

Nothing in the proposals should “encourage any perverse behaviours”, the LGA said, but it argued that some would penalise local authorities that generate higher amounts from external income “and the expectation must be that if they are enacted local authorities will be encouraged to reduce the amount of income they receive.

“This cannot be good for the overall public purse and provision of public services.”

There was also confusion about which councils would be covered as the Government’s consultation document proposed separate assessments for ‘upper tier' and ‘lower tier’ local authorities, based on ONS definitions of these.

But the LGA said: “Under these ONS definitions single tier councils (metropolitan districts, English unitaries and London boroughs) are included in both upper tier and lower tier, which implies they will be included in both groups.

"It would make a great deal more sense if single tier councils were only to be measured once.”

Mark Smulian