The Power to Innovate

The general power of competence is set to be a key part of the forthcoming Localism Bill. Nigel Keohane explains why the time is right for its introduction and how it could provide significant freedoms for local authorities.

At the heart of the coalition government’s decentralisation agenda sits the General Power of Competence. The question is not whether it will be introduced to Parliament in the coming months, but what change it is likely to effect.

For some, it is merely an extension of existing powers; for others, – including the government – a landmark philosophical and practical reform that symbolises in legislation its localist credentials and ambitions; for some lawyers, little more than is already there; for some extreme sceptics, the prospect even of town halls developing their own atom bombs.

However, in an era of change and uncertainty, when innovation is needed not only to engage local entrepreneurs in private sector economic growth, but also to develop new revenues streams for a cash-strapped sector and develop mechanisms to mobilise talent across communities, this potential change matters now more than ever.

A new research paper by NLGN finds that there is in fact much cause for enthusiasm and little for concern over the introduction of a new power.

A General Power would overturn the legal restriction of ultra vires established over 150 years ago initially for railway bodies but then attached to local authorities as well. This principle limits the role of councils to activities that have been positively sanctioned through parliamentary legislation.

The wisdom of such a constraint has been questioned time and again with additional freedoms granted to local government on charging, trading and the ‘well-being powers’ over the past decade. Despite their impact, these have failed to allow full discretion to councils in a range of ways. Councils are limited as to the charges they can introduce and the profits they can make; the ability to trade as independent organisations; the types of partnerships they can enter into with public and private bodies; and the activities they can engage in that are not incidental to their functions.

Of more general concern has been the risk aversion of local authorities as they have sought to navigate a restricted and complicated legislative landscape. Since last summer, the court judgements on the LAML case (which found against a financial efficiency being in the ‘economic’ interests of the local community) have undermined any remnants of confidence in the existing well-being powers, established new anxieties about the conservatism and centralism of the judiciary, and created new waves of enthusiasm for reform.

So, if there is cause for reform, need we fear it?

Simply put – no. As the Government Minister Bob Neill MP has argued, existing legislation would provide against anything as absurd as nuclear proliferation at the local level. Competition legislation and European procurement law would guard against undue protectionism or interference in the private markets. In any case, any ambitions for income generation would be balanced against councils’ economic development functions and business rate incentives. Finally, the little known ‘Wednesbury Rules’ would ensure that any decisions were made on an impartial basis.

In fact, the experience of other countries such as New Zealand and Australia and, indeed, the history of the well-being powers in England suggest that the danger lies in being insufficiently rather than excessively radical. These disappointments also provide important lessons about the framing of the legislation, which will be crucial as the Localism Bill is drafted and introduced into parliament over the autumn. Chief amongst these is the fact that the very act of specifying a new remit for local government will dampen innovation both in the immediate term and also in the years ahead. It would be far better simply to abolish the principle of ultra vires altogether and remove much of the legal uncertainty that leads to risk aversion.

If the coalition government took this approach and also offered local authorities freedoms within the existing taxation regime, then a new set of options really would open up. These could include: councils offering banking, estate agency or insurance services to its local residents; new trading ventures with public and private bodies selling services to public agencies and the private sector; opportunities to raise additional funds through local charges; varying charging rates for planning fees to reflect local circumstances and costs; and tweaking tax rates and discounts to incentivise citizen behaviour or small business development.

With the government abandoning the suffocating audit and performance management structures that so hampered local transformation in the past, this legislative reform really could give communities the power to innovate.

Nigel Keohane is head of research at NLGN. His research paper – Going Nuclear? A general power of competence and what it could mean for local communities – was published by NLGN in August 2010.