Castle Point Borough Council (Capping) (Hansard, 5 July 1993)

§ Dr. Robert Spink (Castle Point)

I am pleased to have the opportunity tonight to explain the capping of Castle Point borough council. I read in my local paper, the Yellow Advertiser, last week that a Conservative councillor is angry because I have not felt able to back the council "to the hilt" on its past financial management. But like my predecessor, Lord Braine of Wheatley, I will always put my constituents' interests and simple justice first and foremost, rather than blindly supporting a council or any other body.

I understand the councillor's frustration, but I am more concerned about the sense of frustration of all my constituents, especially those who find it difficult to meet a high council tax bill and those who previously relied on or benefited from non-statutory services. That frustration is exacerbated by the fact that the council had built itself a reputation for providing high-quality services at a low cost to the local community.

Hon. Members will note that Castle Point is not a profligate council. Councillors have not wilfully overspent, disregarded Government policy or flagrantly embraced hare-brained spending schemes. The problem arose from previous years' errors in budgeting and accounting irregularities, which led to an extraordinary deficit of £2.3 million and which must be corrected in the current year. That is the reason for the council's high budget this year and for the Government capping it.

I should like to set out the facts in three broad sections, because my constituents have a right to know the facts: first, exactly how the deficit arose and what happened to the £2.3 million; secondly, what action the council and the Government have taken to alleviate the problems caused by the deficit; and thirdly what action the council is now taking to ensure that such a problem cannot recur.

I must set the record straight, since politically active groups and individuals in my constituency have been misrepresenting the situation and scaremongering among vulnerable people, who are rightly concerned. The £2.3 million deficit arises largely from incorrect budgeting for interest payable and receivable. The sums amounted to £793,000 in 1991–92 and £980,000 in 1992–93. In addition, other errors in budgeting and in controlling budgets occurred. The main items were an income shortfall of £260,000 for planning and land charges, a £140,000 shortfall on housing account advances and £90,000 depletion of capital plan—the inability to capitalise salaries.

Those sums and a multiplicity of lesser variations make up the total deficit of £2.3 million. The money has not been stolen; it has not gone missing, or even been lost. It was spent on services in Castle Point—services to the people and the community of Castle Point. It was money spent over and above the amount that was collected by the council.

So who is responsible for this problem? To make errors in budgeting is not, to coin a phrase, a hanging offence. It is usual for budgets to show variances in outturns. Budgets are simply financial plans and need to be managed like any other plans. I do not unduly blame the former finance 160 director for those errors, but he must carry some blame for his failure to manage the budget variances and for failing to report them to senior colleagues or to councillors.

He must, however, carry the whole blame for hiding those deficits by using irregular and improper accounting practices over a long period. The council's auditors, Ernst and Young, and the independent financial consultants, Binder Hamlyn, concluded that there were accounting irregularities. On 5 November 1992, external auditors informed the chief executive of the council that an illegal transfer of funds between accounts had taken place and that this was the responsibility of the former finance director, who as late as last October had still failed fully to advise the council of its financial position.

A chronological report giving the precise timings of the various events was provided and published in full by the chief executive at the council meeting of 14 June, so I shall not trawl through those facts now.

Councillors are fully accountable, but they did not know of the deficit in time to act to prevent it from accruing. All fair-minded people will acknowledge that councillors could hardly act to resolve the situation when they simply could not have been aware of it, since they were misled by the information given by the former finance director, which they accepted in good faith and had no reason to disbelieve—until of course, the auditor drew attention to the problems.

Nevertheless, councils must and do fully accept their accountability. The former finance director was retired on health grounds at the end of last year. I regret that: I believe that he should have been suspended, and subsequently forced to explain his actions following the final investigations of the auditors and accountants.

It is not my job to defend the council; my responsibility is to defend my constituents, and in particular to ensure that they have an accurate account of what has happened. I therefore called on the council to publish the definitive Binder Hamlyn report. I am pleased to say that the report was indeed published, in full. I welcome the spirit of openness adopted by the council.

On 9 June, the hon. Member for Thurrock (Mr. Mackinlay) said that the capping of Castle Point council was the fault of the treasurer. Like me, he said that we should have a full disclosure.

if something is wrong at Castle Point".—[Official Report, 9 June 1993: Vol. 226, c. 397.] I trust that Castle Point's openness, and my statement tonight, will help to bring about a full and frank disclosure.

The hon. Member for Thurrock went on to say that he looked forward to hearing from me on the subject; but, curiously, he prevented me from explaining by using up much of the time available in the capping debate. I am sure that you recall the incident, Mr. Deputy Speaker. That is why I am here tonight: I thank you for the opportunity.

I note that the hon. Member for Thurrock has not cared to join us tonight. That is a great shame, because he has not been able to listen to my account. Such curiously paradoxical behaviour is not at all unusual in the hon. Gentleman. For instance, he aspires to be the sole socialist spokesman for all Essex, yet he has not seen fit to move his family home there. Is Essex not good enough for the hon. Gentleman? Does he not like Thurrock? Does he expect his tenure to be very temporary? I guess so—but I digress.

161 What has the council done to resolve the £2.3 million deficit, as it must in this year's budget? It made difficult decisions to raise more income: for instance, it doubled some car parking charges. It has also dramatically reduced costs and spending—for example, by imposing a moratorium on some discretionary expenditure, such as support for the welfare minibus scheme. The scheme, however, was eventually saved, and is still running.

The maintenance of public toilets was cut, as was the senior citizens' concession. Indeed, it could be said that the council cut everything except the grass. I am pleased to report, however, that so fierce was the public outcry in Castle Point that the council has now resumed a limited grass-cutting programme. My constituents are grateful for that.

The council also reduced staff numbers, and cut salaries across the board—from cleaner to chief executive—by 6 per cent. The councillors reduced their statutory attendance allowances by 6 per cent. Those decisions were made more difficult because Castle Point council, unlike more profligate and unwise councils, has always run a tight ship. There were no easy schemes to be cut, as there were at Harlow, for instance; there were no pots of unused reserves on which to fall back.

The councillors were not at all happy to make such decisions, but in truth they had little choice. They worked hard to alleviate the problem: for instance, on the welfare minibus, individual councillors gave tens and even hundreds of pounds of their own money, and with the help of the whole community they kept the service running.

I am heartened by the magnificent community spirit that has surfaced. Churches, charities and many local organisations responded to my call to help to support the welfare minibuses until normality returns next year. No one has done more than the previous and present mayors of Castle Point, Councillors Bill Dick and Betty Wood, who have led the way and, like many of their fellow councillors, have shown great honour, caring and dignity in a difficult time.

After the first programme of action, the council was able to set a budget of £8,470,300. The Government imposed a spending limit of £7,970,000, so the council had to look again in order to close the gap of £500,300 which was effectively imposed by the capping. I said at the time that the adjustment could be achieved without further major cuts in staff or services, and that the Government had got it about right. Events have shown that to be the case. Indeed, as I said earlier, the grass-cutting programme increased by about £10,000 after the capping.

The £500,000 capping reduction, the £60,000 cost of re-billing, and various other adjustments, have all been met by the council, and the new budget falls some £12,400 below the Government's capping level. Meeting the cap has been achieved by three key actions on the council's part. First, the Minister allowed the council to capitalise previous years' redundancy costs from this year's assets disposal which, in all, will save abut £250,000 in the current year.

Secondly, the council's bankers have rescheduled the councils finances, which will save about £185,000 in the current year. Thirdly, the balance of funds needed was found from many budget income and expenditure adjustments. For example, there is a saving on the homelessness budget as the number of bed-and-breakfast families in Castle Point has fallen from 36 at the turn of the year, which was unacceptable, to zero today.

162 That is a welcome and worthy achievement by the councillors and the council's officers. In particular, it is the result of the personal drive and dedication of Councillor Malcolm Hume, the chairman of the housing committee. Today, we have a balanced budget. That is why I supported, and was right to support, the Government's capping order.

On behalf of the council's chief executive, Mr. Barry Rollinson, I must pay tribute to Department of the Environment Ministers and officers, who have been tough but fair. They have listened carefully, and been as helpful as they possibly could. They helped by fixing the standard spending assessment in the first place, by giving directions and relaxations when they could, and in the careful setting of the capping level, which, as has been proved, was correct.

I deal now with the action being taken by the council to prevent such a problem from recurring. I assure the House that the council has implemented, and is implementing, every recommendation in the auditors' report. That includes the commissioning of the independent financial consultants Binder Hamlyn, who specialise in local government finance.

The council has rigorously followed the Binder Hamlyn recommendations. New procedures, structures and new and clearer routes of accountability are being implemented and, invigorated by the success of its fundamental short-term review, the council is embarking on a fundamental longer-term review, a further efficiency programme.

That review will consider the large-scale voluntary transfer of council housing to a housing association which will have a great tenant-friendly credentials. I welcome that move very warmly, as it will be of great benefit to the tenants in my constituency. It will give them greater protection and greater control of their situations. I believe that it will also bring lower rents in the longer term.

That review will also consider the contracting out of some financial and accounting functions to a specialised organisation. You will understand, Mr. Deputy Speaker, when I say that I welcome that initiative. The review will also involve a more purposeful market testing of all the council's services, and improved utilisation of all the council's facilities, buildings and assets.

That said, there are still problems to be resolved. I have particularly stressed to the council the need for a more reasonable budgeted collection rate. The council should achieve 97 per cent.—as most will. However, a rate of only 90 per cent. has been set. That has put bills up and rendered transitional relief less effective, and has denied my constituents some of the protections that they should have enjoyed against the increased tax demand. That will result in an over-collection on budget and a surplus in the collection fund. However, that surplus cannot be legally used in the current year.

The surplus does not, and never will, belong to the council. It belongs to my constituents, and it must be returned to them in the following year, by holding their next year's council tax bill even lower than it otherwise would be. The money must not be spent on services or salaries or put into reserves.

Hon. Members will already have calculated that, without the extraordinary deficit of £2.3 million, the council's spending this year would not be the Government-set level of £7.9 million; it would have been only £5.6 million. The calculation is easy: £7.9 million less the £2.3 163 million deficit that must be met this year leaves £5.6 million only that is being spent on services. I want that low level of spending on services projected into coming years. That extremely low level applied five years ago, and it is a starting point for next year's council tax.

I want to see the greater part of the savings from next year's low spending level passed on to the council taxpayer in lower bills. There should be no general reinstatements of this year's efficiency savings. We have gained them and we must keep those gains. The minor increases necessary in next year's budget that are needed to remove the moratorium on small discretionary items such as the £19 pensioner concessions must come from the longer-term further efficiency programme that I outlined a moment ago.

My hon. Friend the Minister is aware that the process has been difficult for all involved, and especially for my constituents in Castle Point. However, Castle Point council can, and I trust will, emerge more professional and stronger in future years. If it does that, Castle Point will become an excellent model of an enabling authority, providing a high quality and high level of services, at low cost to the council taxpayers. In any event, I should like to express my deep concern about what has happened. I fully understand and share my constituents' sense of frustration.

However, before I finish, I must warn each council taxpayer to continue to pay their current bills in full. New bills will be sent to them with the lower charges following the capping; they will receive them in August or September. Anyone who attempts to delay payment by waiting for those later bills will be under the most severe risk of legal action, with all the additional costs that that legal action will bring on them. I will have no means to protect them from that. I regret having to give that rather negative message, but it is my responsibility to defend my constituents in every possible way.