Power to the people?

The long-awaited general power of competence is finally making its way to the statute books. Janet Lewis analyses what it might – and might not – allow local authorities to do.

The Localism Bill, published in December 2010, introduces a new power for local authorities “to do anything that individuals generally may do”. Given the other important and radical reforms introduced by the Bill (including wide-scale reforms to the planning system), the status of the new general power is emphasised by its pole position in Section 1.

The new general power is not unlimited and, as with all these things, the devil is in the detail of the statutory restrictions. Is it powerful enough to be the centrepiece of localism in times of budget cuts and the soon to be published White Paper on competition? Will it really encourage local authorities to drive through innovation? Or is the timing just not quite right?

Freedoms, flexibilities – and trust?

The new power has elevated local authorities to the status of individuals with full capacity (ie not a child, prisoner or a person with mental incapacity) in terms of the things that local authorities are authorised to do.

The general power of competence enables authorities to do things:

• anywhere in the UK or abroad
• for a commercial purpose or otherwise for a charge
• for, or otherwise than for, the benefit of the authority, its area or persons resident or present in its area.

Without a doubt, the new power goes well beyond existing powers, including the well-being power introduced in the Local Government Act 2000. Well-being was the precursor to a general power of competence but was not nearly as extensive or permissive. Any authority seeking to push the boundaries of well-being will have been put well and truly back into cautious mode following the judgement in the case of London Authorities Mutual Limited v London Borough of Brent.

In line with Conservative pre-election policy, the general power of competence signifies a substantial shift away from restricting local authorities and firmly towards an extension of powers and greater freedoms and flexibilities. Perhaps more intriguing, the new power presents an offer of trust by central government to allow authorities to go forth and innovate in their activities.

A general power, but no general competence

The power is a general power of competence and not a power of general competence. The phraseology is perhaps academic, but the subtlety of the distinction should not be overlooked. The general power of competence does not allow local authorities to do anything and everything, without restriction or prohibition.

Authorities cannot use the new power:

• to do things which are limited or prohibited by pre-existing statutory provisions
• to circumvent existing statutory provisions.

In other words, if a statute expressly limits or prohibits certain activities, then the use of the general power will be similarly limited or prohibited.

In addition, although the general power of competence permits authorities to charge for services and to engage in activities for a commercial purpose, there are limits on both. In terms of charging, an authority can still only charge for non-statutory services and cannot charge for statutory services, the person being charged must have agreed to the service being provided, there must be no pre-existing charging regime in relation to the service, and the income from the charge cannot exceed the costs (ie the charge must be revenue neutral).

Authorities can only do things for a commercial purpose through a company (as defined in the Companies Act 2006). Unfortunately the Localism Bill does not fix the uncertainty over authorities participating in other types of corporate entities, including for example limited partnerships and limited liability partnerships. Indeed, it will no longer be possible to argue that the absence of specific mention of these more modern types of entities was due to such entities emerging after the statutory provisions. It is not yet clear whether the restrictions on commercial activities in the new power will be interpreted to mean that authorities do not have powers to participate in such entities.

It is also significant that the Localism Bill gives the Secretary of State relatively wide powers to curtail the use of the general power of competence by making orders preventing authorities from acting in certain ways or by imposing conditions on them doing so. On the flipside, the Bill also gives the Secretary of State power to repeal or revoke any statutory provisions affecting or overlapping with the new general power. So much may depend on whether the Secretary of State leans one way or the other over the course of time and most likely depending on whether he/she thinks the power is being used for the “right things”.

Good bye to ultra vires?

The general power is not the end of the fundamental principle of ultra vires, nor is it really a weakening of or move away from it. Local authorities can still only do things that are permitted by statutory powers, albeit that there is now a more general permissive power to rely on.

It is also true that the pillars of ultra vires remain. Local authorities must still exercise their powers properly, for proper purposes, taking into account all relevant considerations and ignoring irrelevant considerations. They must still follow procedural requirements, exercise discretions appropriately and have regard to other statutory duties.

The general power of competence does not undermine or do away with the ultra vires principle. Indeed, it will perhaps strengthen and reinforce the need for local authorities to undertake a thorough review of statutory powers in the context of any proposed activity, not least to ensure that they will not fall foul of the restrictions on the use of the general power. Some might say that ensuring that no statutory limitations or prohibitions exist will in fact require a more robust approach to vires than simply finding an enabling power.

Opportunity knocks

Assuming local authorities are willing to take the initiative and make innovative use of their new power, there are certainly plenty of opportunities. The most radical of these are likely to be in the sphere of banking and financial services and perhaps also tax discounts and/or deferrals. True localism would of course see the general power of competence accompanied by greater local control over council finances – requiring a root and branch review of local authority accounting rules. Whilst there is a step towards this in certain sectors, including for example through the reforms to the housing revenue account system, this overall flexibility is still a way away.

Authorities may not yet have total free rein over their financial affairs, and certainly have less revenue overall, but the new power does provide a foundation for greater flexibility over the ways in which capital and revenue budgets are set and managed. Alongside innovation, perhaps this will allow for a longer-term view to be taken in areas where this is required. The most obvious example is asset management, where most authorities could benefit from a long-term strategy to asset management, generating savings and efficiencies along the way.

An extension of service provision, whether into new services or extending the scope of existing services, may also result. There will be greater flexibility to partner with the private sector, with other public bodies through shared services, and (in line with the Big Society) with community and voluntary groups. All of this can now be done for a commercial purpose, without the need to demonstrate a link to a benefit for the local authority’s area or persons within their area. In this sense, the general power of competence is wider even than other countries in Europe where similar powers are subject always to meeting a local interest.

Time will tell whether English and Welsh local authorities will extend their activities abroad and take the opportunities offered by international markets and the global economy. There will of course be a natural (if not legislative) need for local authorities to act in the interests of their local residents. Those against a widening of powers beyond activities which are for the benefit of the local community will perhaps be comforted by the simple fact that authorities are always likely to focus on local benefit to avoid a political backlash.

Wider political questions over the role and function of local councils will remain – are they the provider of first or last resort, and so on? From a purist perspective, if councils exist to serve the local community, then powers should be expressly restricted by that. The experiment of a general power of competence not linked to local benefit in the context of a localism agenda, is an interesting proposition. The practical outcomes will be watched with interest by lawyers, politicians and the public alike.

Janet Lewis is a senior associate at Nabarro (www.nabarro.com).