Power struggles

Both major political parties are paying lip service to granting local authorities greater freedoms. It remains to be seem how far they go in practice but, writes Judith Barnes, even a power of general competence would have its limits.

When the power of wellbeing was introduced in the Local Government Act 2000 it was supposed to release local government from the shackles of the narrow interpretations of public law powers by the Courts. For many, the power to promote the economic, social and environmental wellbeing of the area and those present was seen as very close to a power of general competence. The first half a dozen cases which sought to interpret the wellbeing power before the Courts reinforced the message that the government wished to convey - that the power should be treated as a power of first resort; that there would need to be clear rationale for imposing any limitations on its exercise; and any limitations would be expected to be explicit rather than implied.

Then came the London Authorities Mutual Insurance case, Risk Management Partners Limited and others v Brent London Borough Council [2009] ALL ER(D) 109 2009. This held that the establishment of a Mutual Insurance Company by a group of London Boroughs was unlawful on two counts. It was ultra vires (ie outside the powers) of the local authorities and it also breached public procurement law, as the arrangements did not fall within the Teckal exemption.

The Court of Appeal not only reinforced the Divisional Court Judgment from 22nd April 2008 but went further in bringing up the bad old case law around the interpretation of ancillary powers, principally s.111 Local Government Act 1972. The Judges paid scant regard to the government’s guidance on the intentions of the wellbeing power and made it clear that “it is still for the Court to determine the meaning of the expression wellbeing and guidance found by the Court to be contrary to such instruction is to be ignored”.

So, despite the aim of the government for the Wellbeing Power to be very broad and flexible in order to allow for innovation by local authorities, the Judges decided to approach the construction from the perspective of the old case law the new power sought to avoid. In particular the incidental to the incidental argument which was stressed in the Richmond and McCarthy & Stone and Allerdale cases was core to the Judge’s thinking. Equally, the provision of insurance was not considered to be the same as entering into a contract of insurance and the judge’s view was that it was more akin to a ‘risky business venture’ rather than a shared services project. The fact that it aimed to save money, which in itself would benefit the council tax payers of the relevant London Boroughs, was not an appropriate justification under wellbeing. There were questions about how Brent in particular had approached the approvals and in particular whether they had demonstrated any link to the wellbeing of the area or the population. No such link was found as Brent had relied upon s.111.

Needless to say, the outlook was very bleak during the summer of 2009. One of the problems at present is the lack of confidence to use wellbeing and other available powers, despite the wording being wide, for fear of challenge. However, the Government has now provided a specific power for local authorities to participate in a corporate body established for the purpose of providing mutual insurance. Sections 34 and 35 of the Local Democracy Economic Development and Construction Act 2009 set out the scope of this power which may be exercised between local authorities and involve other affiliates such as schools, ALMOs and other bodies prescribed by regulations.

During the passage of the Bill a new clause 16 was introduced which would have given a power of general competence to local authorities. The clause was proposed by Conservative MPs who have committed the party to the introduction of a power of general competence for local authorities for over a year now as part of their Control Shift Green Paper published in February 2009. Although the Tories say they will support the power, Rosie Winterton MP was not convinced and she effectively side stepped the introduction of a power of general competence at that point.

She said that the government, as part of its commitment to local authorities from the consultation “Strengthening Local Democracy” were not sure that a power of general competence would have been a sufficient power to authorise a mutual insurance company so agreed to look at local government powers again at some point in the future after the enactment of this specific municipal insurance power (see column 190 Hansard, 13 October 2009).

So what would a power of general competence mean for local government? The wording put forward as part of the passage of the Bill was a proposal to amend the wellbeing power to read “Every local authority has full powers and capacity to carry on or undertake any activity or business, do any act, or enter into any transaction with full rights, powers and privileges for so doing”. Authorities would still need to demonstrate the benefit to the area or persons resident or present, and have regard to the Council’s sustainable community strategy.

This sounds much wider than the wellbeing power, but would it deliver what local authorities want and need? As the Judges made clear in the LAML case, interpretation of statute is a matter for them, not the Executive. So would there be the same concerns regarding the power of general competence as the wellbeing power? Authorities seem to be looking for a power which will give them confidence to achieve the strategic agenda; to innovate where appropriate; to share services with public sector organisations, government and others to deliver on the Total Place agenda; to ensure that localism can be delivered; and to do anything else they believe will benefit the area or residents.

A power of general competence would still have to be exercised within the scope of the ultra vires doctrine. This means that local authorities not only need to find a power, but they also need to exercise it properly (the twin pillars of ultra vires). This includes the need to:

• act for proper motives;
• take into account all relevant considerations and ignore irrelevant considerations;
• follow any procedural requirements, eg in the constitution or in any legislative requirements, such as those governing public procurement;
• exercise discretion appropriately;
• have regard to the interests of tax payers where the power involves expenditure or the generation of income (the fiduciary duty); and not do anything which no reasonable authority would do.

In summary, local authorities must not act illegally, irrationally nor outside proper procedures.

So, there would still be controls on what local authorities could do. During the passage of the Bill, Jack Straw suggested that a power of general competence might not prevent Islington Council from making an atom bomb (column 202 13th October 2009). To my mind such a course of action would be irrational - but perhaps not in everybody’s mind, though given the conservative nature of the judiciary I am pretty sure such a course would be irrational in most Judges’ minds.

The only way to give unlimited, unfettered discretion for local authorities to do absolutely anything they wished, would be to abolish the ultra vires rule for local government. This has been achieved for private limited companies under the Companies Act 1989 and the Companies Act 2006. Many would say that the ability to challenge ultra vires actions of local authorities by judicially reviewing them through the courts is an appropriate check and balance which needs to be retained. Others may argue that the evils it was intended to address are now amply covered by the other regulation of local government through its fiduciary and other duties.

However, abolition of the ultra vires rule may prove to be a step too far even for the Conservatives. Perhaps therefore we are left in the situation of having to find other ways to influence the judiciary in future?

Judith Barnes is head of local government at Eversheds LLP