PLC Public Sector reports:
The Localism Bill has just had its first reading in the House of Commons. As part of the aim of “lifting the burden of bureaucracy”, Article 1 includes the long wished for “general power of competence” enabling a local authority “to do anything that individuals generally may do…even though they are …unlike anything the authority or other public bodies may do”.
The problem with well-being
The call for the new power arose from the confusion created by the LAML judgment (see Legal update, Court of Appeal ruling on well-being powers) in which the need for the local authority’s actions to “promote or improve the well-being of its area” caused a barrier to them relying on the well-being power to set up a mutual insurance company. Specifically the Court found that measures to save money for the authority did not necessarily promote or improve the well-being of its area; the authority had to go one step further and identify a purpose which the authority considered would promote or improve well-being to which those savings were to be allocated. (For more information, see Practice note, The well-being power under the Local Government Act 2000.)
In some ways it is difficult to see why this judgment caused the concern it did amongst various commentators, including the Local Government Association:
“At a time of recession and public spending pressures, where it is vital councils have the confidence to innovate, the LAML judgment seriously undermined council confidence in the well being power as a wide, general power of first resort.”
After all, it should be relatively easy for councils to make the link from savings to improvements in (or retention of) services to the public.
However, if the Court of Appeal is right (the appeal was heard by the Supreme Court on 8 December 2010 and the judgment is awaited), it does seem that councils are being required to jump through hoops which may lack operational sense. After all, it naturally follows that the authority should be able to allocate savings made in one area to stretched budgets in another, or to meet unexpected costs. And, as the well-being power depends on the authority’s intentions at the time the power is exercised (the action doesn’t have to promote well-being as long as the authority considers it likely), was the Court of Appeal really saying that as long as the authorities had identified a purpose for the savings which they considered likely to promote well-being they could have relied on the power, even though it wouldn’t matter if they later directed those savings elsewhere?
The case for a general power of competence
The LGA’s argument for a new general power of competence was based on the need for clarity and for the courts to take a purposive approach to the power to override legislation which conflicts with the power, in a similar way to the judicial approach to the Human Rights Act 1998.
“We need a clear power of first resort, and a framework to simplify and remove restrictions from existing statute, where these create a barrier. We need, as far as possible, to create a power which will not be interpreted in the courts in a restrictive way.”
(See Legal update, LGA publishes “power of general competence” draft bill.)
In the event, the general power of competence in the Localism Bill does not include the provision requiring other legislation to be read in a way which is compatible with the power, and its exercise is curtailed by prohibitions and limitations set out in other legislation. Therefore, although by conferring powers on local authorities akin to those of an individual, this measure is a big step forward, if the Bill is adopted, councils will still have to check before they take any innovative action that they are not expressly prevented from doing so under any other legislation.
However, the general power of competence contained in the Localism Bill goes further than the draft advanced by the LGA in two key aspects:
- There is no geographic limit to the exercise of the power; authorities can act outside their areas, and even outside the UK.
- There is no need for the act to benefit the authority, its area or residents in its area.
This last clarification is odd, and must result from the LAML judgment in which the authorities could not establish that savings generated through exercising the well-being power would benefit their areas. But it does raise the question of accountability to the local rate-payers if the authority which serves them does not have to consider the benefit to the area arising from a particular course of action. In any event, according to the Bill, English councils will not be relying on the well-being power in future though, inexplicably, it will continue to apply in Wales.
Bigger barriers to efficiencies?
Here at PLC we receive a lot of comment and queries from local authority lawyers advising on outsourcing, shared services, and other complex projects with other public sector organisations, as well as the third and private sectors. Aside from the powers issue, the following issues act as potentially greater barriers to making savings:
- The procurement regime and the rules against state aid which create barriers to the authority establishing (through the direct award of contracts, funding or resources) companies which can offer services to other purchasers and so generate income for the authority (see Practice notes, Public procurement in the UK and Local government: powers to participate in external organisations and Legal update, Court of Appeal ruling on “in house” procurement).
- The requirement to trade through a company, and confusion as to the line between generating income through maximising the use of council assets and trading for a profit (see Practice note, Local government: exercising the power to trade commercially).
- TUPE, especially the associated requirement to ensure employees transferring from the public sector have access to broadly comparable pension benefits (see Practice notes, TUPE and tendering local authority service contracts and Managing pensions risk in local authority outsourcing transactions).
All these issues will still require careful navigation if the local authorities are to avoid legal challenge, and make the efficiencies expected of them without reducing front line services or increasing council tax. They are also central to the success of the government’s plans for the Big Society.
PLC Public Sector will continue to expand our content in these and other areas in response to, and in anticipation of, our subscribers’ requirements.