Committee for the Environment Report on the Local Government (Finance) Bill (NIA 14/09) Together with the Minutes of Proceedings, Minutes of Evidence and Written Submissions Relating to the Report Ordered by the Committee for the Environment to be printed 2 December 2010 Report: NIA 03/10/11R (Committee for the Environment) Session 2010/2011 Second Report Membership and Powers The Committee for the Environment is a Statutory Departmental Committee established in accordance with paragraphs 8 and 9 of the Belfast Agreement, section 29 of the Northern Ireland Act 1998 and under Standing Order 48. The Committee has power to: • Consider and advise on Departmental budgets and annual plans in the context of the overall budget allocation; • Consider relevant secondary legislation and take the Committee stage of primary legislation; • Call for persons and papers; • Initiate inquires and make reports; and • Consider and advise on any matters brought to the Committee by the Minister of the Environment The Committee has 11 members including a Chairperson and Deputy Chairperson and a quorum of 5. The membership of the Committee since 9 May 2007 has been as follows: Mr Cathal Boylan (Chairperson) 9 Mr Thomas Buchanan 7,8,13 Mr Trevor Clarke 15 Mr Willie Clarke 14 Mr John Dallat 5 Mr Danny Kinahan 3,4 Mr Patsy McGlone (Deputy Chairperson) 6,9,10,12 Mr Alastair Ross 1 Mr George Savage 2,16 Mr Peter Weir Mr Brian Wilson 11 1 On 21 January 2008, Alastair Ross was appointed as a Member and Mr Alex Maskey ceased to be a Member 2 On 15 September 2008 Mr Roy Beggs replaced Mr Sam Gardiner 3 On 29 September 2008 Mr David McClarty replaced Mr Billy Armstrong 4 On 22 June 2009 Mr Danny Kinahan replaced Mr David McClarty 5 On 29 June 2009 Mr John Dallat replaced Mr Tommy Gallagher 6 On 3 July 2009 Mrs Dolores Kelly replaced Mr Patsy McGlone as Chairperson 7 On 14 September 2009 Mr Adrian McQuillan replaced Mr Trevor Clarke 8 On 1 February 2010 Jonathan Bell replaced Mr Adrian McQuillan 9 On 12 April 2010 Mr Cathal Boylan was appointed as Chairperson and Mrs Dolores Kelly ceased to be a Member 10 On 12 April 2010 Mr Dominic Bradley was appointed as Deputy Chairperson 11 On 13 April 2010 Mr Brian Wilson was appointed as a Member and Mr David Ford ceased to be a Member 12 On 21 May 2010 Mr Patsy McGlone replaced Mr Dominic Bradley as Deputy Chairperson 13 On 13 September 2010 Mr Thomas Buchanan replaced Mr Jonathan Bell 14 On 13 September 2010 Mr Willie Clarke replaced Mr Daithi McKay 15 On 13 September 2010 Mr Trevor Clarke replaced Mr Ian McCrea 16 On 1 November 2010 Mr George Savage replaced Mr Roy Beggs Table of Contents Report Executive Summary Recommendations Introduction Consideration of the Bill by the Committee Key issues Clause by Clause consideration of the Bill Appendix 1 Minutes of Proceedings Appendix 2 Minutes of Evidence Appendix 3 Written Submissions Appendix 4 List of Witnesses Appendix 5 Research papers requested by the Committee Appendix 6 Other papers submitted to the Committee Executive Summary Purpose 1. This report sets out the Committee for the Environment's consideration of the Local Government (Finance) Bill. 2. Members sought a balanced range of views as part of their deliberations on the Local Government (Finance) Bill and requested evidence from interested organisations and individuals as well as from the Department of the Environment. 3. The Committee made five recommendations having identified the following key issues. Key Issues 4. The introduction of the Local Government (Finance) Bill was welcomed by the Committee. The Committee considered that the key issues relating to the Bill were: • Delegated powers of the Bill • Role of the chief financial officer (Clause 1) • Concept of robustness in relation to estimates (Clause 4) • Robustness of the audit process (Clause 5) • Designation of reserves as controlled reserves (Clause 7) • The necessity for guidance with regard to the power of a council to borrow (Clause 11) • Requirement for the Chief Financial Officer to report on the affordable borrowing limit (Clause 12) • Circumstances necessitating the imposition of borrowing limits and a definition of national economic reasons (Clause 14) • Definition of a long term finance in the context of a credit arrangement and the long term liabilities associated with closure and aftercare costs of landfill sites (Clause 17) • Use of capital receipts (Clause 22) • Guidance on investments (Clause 23) • Level of Assembly scrutiny in relation to the appointment of a receiver in respect of unpaid council borrowings (Clause 24) • Review of the statutory formula used for allocation of the rates support grant (formerly the 'resources grant') and ring fencing of the rates support grant to prevent in-year cuts (Clause 27) • Payments due by councils to Departments (Clause 30) • Flexibility of payments for part time councillors (Clause 31) • The use of gender neutral language (Clause 32 and Clause 39) • Expenses incurred in attending conferences and meetings (Clause 34) • Costs of establishing an independent remuneration panel to advise on payments to councillors and expenses to be supported by appropriate evidence (Clause 35) • Non-councillors receiving expenses (Clause 36) • Review of the current limits on expenditure for special purposes (Clause 37) • One-off payments for public appeals (Clause 39) • Subscriptions to certain local government associations and other bodies (Clause 41) • Public Private Partnerships and Public Finance Initiatives • Social clauses in public procurement contracts Delegated powers of the Bill 5. The Committee sought advice from the Examiner of Statutory Rules in relation to powers within the Bill to make subordinate legislation. 6. The Examiner of Statutory Rules advised that there were a range of powers to make regulations or orders in the Bill all of which were subject to negative resolution or draft affirmative procedure. In his opinion these powers were subject to an appropriate level of Assembly scrutiny with the exception of the order-making power in Clause 24(9). Role of the chief financial officer (Clause 1) 7. The Committee considered a range of views on the necessity to separate the roles of chief executive officer and chief financial officer within a council. While acknowledging that separation would be in line with best practice in the interests of good governance, the Committee expressed concerns about the financial implications for smaller councils in particular. 8. Research commissioned by the Committee identified that of the 17 councils that replied, 16 advised that they could re-designate an existing officer as the chief financial officer and only 1 would have to recruit eternally. SOLACE had no strong opinion on the designation but was keen that the role of council chief executives as chief accounting officers should not be undermined. 9. The Department indicated that while this Bill did require a council to designate a chief financial officer, it would be for the council to decide if this role could be discharged by an officer with other significant responsibilities. The Department advised that it does intend to specify a requirement for separation of the roles of chief executive and chief financial officer when it brings forward a Local Government (Reorganisation) Bill. 10. The Chartered Institute of Public Finance and Accountancy (CIPFA) recommend that the chief financial officer be required to hold an accountancy qualification, be a member of the councils' senior management team and be a member of a recognised professional accountancy body, as detailed in the CIPFA statement on the 'Role of Chief Financial Officer in Local Government'. The Department confirmed that it does intend to refer councils to CIPFA's statement. 11. The Committee agreed that the proposals in the Bill requiring councils to designate a chief financial officer, along with guidance recommending that the designated officer hold membership of a recognised professional accountancy organisation, were appropriate at this stage under the current council model. Concept of robustness in relation to estimates (Clause 4) 12. Some organisations who made submissions to the Committee sought clarification on the concept of robustness. The Department advised that the designation of a chief financial officer who would have regard to Department guidance, accountancy standards and the Prudential Code for Capital Finance in Local Authorities issued by CIPFA would ensure robustness. Robustness of the audit process (Clause 5) 13. The Committee questioned the robustness of the audit process and agreed to make a recommendation that in conjunction with the implementation of this Bill, the audit process should be reviewed and if necessary, strengthened. Designation of reserves as controlled reserves (Clause 7) 14. The designation of council reserves as controlled reserves proved unpopular with the majority of organisations who made submission to the Committee as they viewed such action as contrary to the objective of the Bill in giving local authorities freedom to manage their financial affairs. These organisations contended that existing Departmental guidance in relation to maintaining, as a minimum, a District Fund balance of between 5 and 7.5% of the net operating expenditure was a sufficient control. 15. The Department offered assurances that there are no plans to impose a control on reserves and this power would only be used if it was deemed that a council was acting improperly with respect to financial responsibilities. This regulation would also be subject to consultation with stakeholders and the Committee. 16. The Committee accepted the Department's indication that it does not plan to impose any controls on reserves and that this clause will only be used if the Department becomes aware of a council acting improperly. The necessity for guidance with regard to the power of a council to borrow (Clause 11) 17.