General power of competence to cut legal costs, predicts impact assessment

There should be a reduced demand on “costly” legal resources by local authorities as a result of the general power of competence, an impact assessment for the Localism Bill has claimed.

This reduction would come “in considering the application of specific powers to take action where they consider such action is justifiable”.

The impact assessment – prepared by the Department for Communities and Local Government – also predicted that the general power would reduce the actual and potential costs arising from legal challenge.

“Perhaps most importantly, the power could significantly increase the confidence of local authorities, enabling them to consider more innovative approaches to service delivery and efficiency savings thus helping them to deliver ‘more for less’,” it added. “Successful examples of implementation should further increase the confidence of local authorities to make greater use of the power.”

The impact assessment pointed to research showing that – even though the courts had in general held the existing well-being power as a broad power – just 15% of local areas had made use of it. It also highlighted how the LAML case had left local authorities feeling constrained in acting innovatively or entrepreneurially.

The alternative of amending the current well-being power by removing the reference to social, economic and environmental well-being and adding provisions to enable local authorities to act in their own financial interest to generate efficiencies and secure value for money outcomes was ruled out as it “would not deliver the required cultural shift and increased confidence of a bespoke general power of competence”.

There were also concerns that the courts would interpret such an amendment as a power to achieve the “proper objects” of a local authority and that – as these are not set down – would continue to decide what those objects are.

The new power of general competence, the impact assessment said, will:

• “Provide local authorities, and parish councils that meet certain minimum standards, with the same capacity to act as an individual generally has, which will enable them to do anything apart from that which is specifically prohibited
• Allow authorities to act in their own financial interest to generate efficiencies and secure value for money outcomes and to raise money by charging for discretionary services and trade in line with existing powers
• Allow authorities to engage in activities, ruled by the Court of Appeal in the LAML case as outside the well-being power, such as providing certain indemnities and guarantees and engaging in speculative activities
• Provide the Secretary of State with a power to amend or repeal enactments that prevent or obstruct local authorities from using the power, and to remove overlapping powers.”

But the impact assessment revealed that some limitations would be put on local authorities’ powers. “In particular, they will remain governed by the existing regimes in relation to taxation, precepting and borrowing (including Prudential Borrowing),” it said. “Councils will also be required to act in accordance with statutory limitations or restrictions on their powers.”

The Secretary of State will also be handed powers to set conditions, or prevent authorities relying on the powers in specified circumstances.

Other points made by the impact assessment include:

• It would be for local authorities to assess the impact on minority groups when formulating their proposed use of the power. Similarly, the duty to undertake other environmental, social and sustainable impact assessments would similarly rest with the local authority wishing to make use of the power
• The government recognised that local authorities could choose to use the power to engage in activities that might ring them into competition with business. However, it said the existing well-being power permits this to an extent and the government is not proposing any changes to the existing charging and trading regimes that would enable local authorities to compete unfairly with businesses.

The impact assessment suggested that the proposed safeguards would provide reassurance that local authorities will act both lawfully and with the overall effect of making net beneficial use of any public expenditure incurred.

The safeguards include general public law constraints in that local authorities are subject to judicial review on public law constraints, such as the ‘reasonableness’ of decisions.

The impact assessment also stressed the importance of the legal safeguards over the use of financial resources, such as the duty on the authority’s chief finance officer to report to the council or cabinet when some part of its decision-making machinery has made, or is about to make, a decision that would contravene the law or incur unlawful expenditure.

Other safeguards include the role played by the external auditor, the best value regime and the fact that the legislation will not provide local authorities with any new power to raise tax or precepts or to borrow.

“Neither will the proposals enable councils to set charges for mandatory services, impose fines or create offences or byelaws affecting the rights of others, over and above existing powers to do so,” the impact assessment said. “But it will be designed to allow councils to undertake innovative activity to drive efficiency and therefore will result in them – potentially – undertaking that presents some risk to the tax payer."

Local authorities will still continue to be obliged to follow the law for the land and abide by all relevant regulatory regimes. The impact assessment includes a statement that the proposals “will not enable local councillors to wage thermonuclear war”.

“In all, there is a complex system of checks and balances in place that help to prevent inappropriate risk taking that would lead to general misuse of public funds,” it concluded.

The impact assessment said the government was reasonably confident that the new power would produce benefits that significantly outweigh the identified risks. It nevertheless plans to monitor these risks through a post-implementation review.

The general powers for fire and rescue authorities could deliver similar benefits for those public bodies, a separate impact assessment suggested.

Nicholas Dobson, senior consultant at law firm Pannone, said he doubted whether, in the age of austerity, challenges to public authority decisions would diminish.

But he added that the focus of these challenges could well see some changes. “Equalities legislation, for instance, may offer a fairly rich seam for voluntary organisations catching a cold following grant reductions or withdrawals by authorities,” he said. “And the Human Rights Act will remain fertile ground for challengers.”

Dobson added that – as the impact assessments acknowledge – the public law backdrop remains intact with potential for challenges based on unfairness, unreasonableness and breach of fiduciary duty, amongst others.

“The function of the courts on judicial review is to prevent abuse or excess of power and those who find themselves disadvantaged by authority decisions are likely to cast an eagle eye around for likely remedies,” he predicted.

In total 33 impact assessments for the Localism Bill have been published. They can be found here.

Other significant information in the assessments includes the revelation that it will cost the Department of Communities and Local Government more than £20m to shut down the Standards Board for England.

However, the government estimates that it will save approximately £6m a year through no longer having to pay for the board’s running costs.

In addition, abolition of the local standards framework is set to save local authorities up to £13m a year – although the best estimate is £6.5m.

The new criminal offence for councillors who abuse their position for personal or financial gain will have an impact on the criminal justice system, the assessment said, but this will be “marginal”.

Philip Hoult