Charging, Trading and the Localism Act 2011
Rob Hann considers the impact of the Localism Act 2011 on the ability of councils to charge for services.
With the unprecedented scale of cuts in public expenditure and with the vast majority of local authorities acceding to central government’s requirement to freeze council tax increases in 2012, more and more local authorities are seeking other ways to raise revenue or generate income.
Charging for the provision of local authority discretionary services is not a new phenomenon but whenever local authorities impose new or increase existing charges controversy is never far behind. Headlines in the newspapers [1] highlight the fact that more and more councils are now charging for services and that there is wide variation to such charges nationwide. Local authority charging was even the subject of an ITV ‘Tonight’ TV programme a few weeks ago, when presenter Jonathan Maitland posed the question "How much is your Council charging you" and set about investigating the cash raising tactics of certain councils who were alleged to be increasing library fines, parking charges and even the cost of social care to cover shortfall from government grants.
With the introduction of new General Powers of Competence (GPC) under Section 1 of the Localism Act 2011, (which effectively gives local authorities, as defined, the powers of an individual of full capacity) the public may be forgiven for thinking that Councils now have carte blanche to do whatever they want to do without fear of challenge including raising income through the imposition of charges. However, as has been so often the case with this vexed topic over the years, the devil is in the detail. Local authority members and officers who are exploring income generation in these financially constrained times, need to fully understand the basis upon which charges may be levied and/or increased in each particular sector or function, despite the new GPC.
To go ‘Back to the Future’ for a moment - litigation raged in the 1990s when similar recessionary market circumstances to 2012 led to Councils seeking to charge for functions which were previously offered for free. The high water mark came when a property developer (McCarthy and Stone) judicially reviewed a London Borough (Richmond)[2] and the case reached the highest court in the land.
The issue at stake? Richmond’s ‘right’ to levy a £25 charge for pre-planning application advice for development proposals put forward by McCarthy and Stone. Lord Lowry, giving the leading judgment, held that a charge cannot be made unless the power to charge is given by express words or by ‘necessary implication’. The Courts’ main concern was that the right to charge for the provision of public services had to be very clear as it was (in their view) a form of taxation - and there could be no taxation without representation.
In 2003, Labour introduced powers to specifically permit local authorities to charge for discretionary services in response to the Richmond case (section 93 of the Local Government Act 2003. Whilst the charging powers were relatively clear, they did contain restrictions, namely:
- A local authority can only charge where it is exercising a discretionary function i.e. where the authority has a choice whether or not to undertake the service at all. Most local authority functions are discretionary in nature. Examples include services relating to adult education, pest control, concessionary travel passes, graffiti removal, residents, parking permits and welfare rights representation.
- A local authority must only recover costs, not make profits through charging (see below);
- Other charging powers and associated limitations on those powers specific to a sector will trump the Section 93 power and will be the regime the authority needs to follow for that particular service.
In practice, there are many detailed statutory provisions which have been specifically tailored to a particular local authority activity or sector and which will govern whether or not and if so, how, a local authority may impose a charge for those specific services.
The aim of section 93 is to allow local authorities to recover the costs of providing services or improvements to services that they might not otherwise have been able to justify providing or been in a position to provide. Guidance (now somewhat ancient) is provided by the ODPM (fore-runner of CLG) for how ‘cost recovery’ charges are set. This, in turn, refers to the Chartered Institute of Public Finance and Accountancy’s Best Value Accounting Code of Practice.
In brief, local authorities are under a general duty to secure that, from one financial year to the next, the income from charges for services does not exceed the costs of provision. This approach allows a local authority greater flexibility to balance their accounts over a period of time and recognises the practical difficulties for a local authority in estimating the charges for a discretionary service at the outset. A local authority must offset any surplus or deficit in income as a result of any over or under recovery of charges when setting future charges for the discretionary services. In this way, the income generated by the discretionary service should equate to the cost of provision.
It should also be remembered that the Courts can intervene to prevent an authority from acting illegally, irrationally or with procedural impropriety. Consequently, to ensure robust and fair public administration (and to prevent legal challenge arising later) internal scrutiny of charging regimes by local authorities is essential.
And so ….onto the brave new world of charging under the Localism Act GPC:
Whilst the GPC itself is drafted to be about as wide as a power can be, the remainder of the section in the Act sets about restricting those freedoms. These provisions make it clear that pre-commencement powers (i.e. primary or secondary legislation which contain prohibitions, restrictions or other limitations) will apply also to the exercise of the general power so far as it is overlapped by the pre-commencement power. The general power does not enable an authority to do anything which the authority is unable to so by virtue of a pre-commencement limitation or anything which the authority is unable to do by virtue of a post-commencement limitation which expressly applies to i) the general power, ii) to all the authority’s powers or iii) to all the authorities powers but with exceptions that do not include the general powers.
In short, this means that instead of searching out enabling powers (as previously) enabling powers are now assumed to exist if what is proposed can be done by an ‘individual’. However, local authorities will still need to search and determine whether overlapping powers exist. To the extent they do, if such powers contain restrictions in legislation which existed prior to commencement of the general power they must follow such restrictions. As mentioned above, there are a great many pre-existing charging powers contained in a myriad of statutes governing various aspects of local government activity. In practice it is extremely difficult to track down and determine whether something exists to restrict, prohibit or limit a particular proposed activity. Part 2 of my recently updated Charging and Trading powers Guide 2012 is intended to assist with these searches. The powers identified are not intended to be a comprehensive list of charging powers, more a starting point for further research. Legislation is constantly changing. There may be some provisions simply missed or yet to be enacted. Consequently, legal advice will need to be taken on these issues in each case despite the wide nature of the general competence power.
Charging under Localism Act powers are governed by very similar requirements to those which already exist under sections 93 of the LGA 2003 which itself remains in force and to sit alongside the new powers. This seems an odd decision given there will be two statutes governing local authority charging activities each containing very similar (although not exactly matching) requirements. Whether this adds to or removes confusion in these areas remains to be seen.
Section 3 of the Localism Act contains the charging powers and the limitations that apply. The general power confers a power to charge where:
- a local authority provides a service to a person otherwise than for a commercial purpose;
- the service is provided to the person in exercise of the general power.
The general power confers power to charge only if:
(a) the service is not one that a statutory provision requires the authority to provide to the person;
(b) the person has agreed to the service being provided; and
(c) ignoring this section and section 93 of the Local Government Act 2003, the authority does not have the power to charge for providing the service.
The general power is subject to a duty to secure that, taking one financial year with another, the income from charges does not exceed the costs of provision. As with Section 93 of the LGA 2003, the power to charge for things done in exercise of the general power is not a power to make a profit from those activities.
Local Partnerships and the LGA have published updated guidance for local authorities (“Enterprising Councils”) that was launched at an on-line ‘hot seat’ event on 23 April 2012 – see https://knowledgehub.local.gov.uk/home.
Rob Hann is Director, Legal Services, at Local Partnerships. He can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it..