Making the connection

Can a local authority charge for the public services it supplies? The simple answer is ‘yes’ but the legislation remains complex and care must be taken to follow the relevant statutory provisions. In the first of three articles examining the legal basis for local authorities' commercial activities, Rob Hann outlines the hurdles that councils must negotiate before they can levy charges for the services they provide.

Income generating activities by public bodies are always likely to generate controversy and scrutiny - as to the way in which such charges are levied, the extent of such charges and over which aspects of public services charges can legitimately be levied. Litigation raged in the 1990s when similar recessionary market circumstances 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) 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 (McCarthy and Stone (Developments) Ltd v Richmond LBC (1991) 4 all ER 897). Richmond tried to argue that although it could not identify an express power to levy a charge for pre-planning advice such activities were incidental to its planning functions and it should therefore be able to impose a charge for a voluntary service. The House of Lords disagreed.

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’. These last words (according to Lord Lowry) impose a rigorous test going far beyond the proposition that it would be reasonable or even conducive or incidental to charge for the provision of a service. The Court's 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.

The Labour Government introduced new powers to specifically deal with local authority charging.  Accordingly, Section 93 of the Local Government Act 2003 contains powers for all local authorities to levy charges for ‘discretionary services’. The Labour administration also took the opportunity to ‘clarify’ the law on commercial trading and introduced separate statutory provisions to facilitate commercial trading which are contained at Section 95 of the same Act.

There had never before been a statutory distinction between charging and trading and whether this helped or hindered activity in this space is questionable. 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 how a local authority may impose a charge for those specific services. Indeed there are so many of these sector specific statutory charging provisions that in 1995, I compiled a compendium of such powers then in force to assist my employing authority at the time. (See ‘Guide to Local Authority Charging Powers’ published by FT Law and Tax.) Copies of this book these days are as rare as J.R Hartley’s ‘Fly Fishing’ (one for the oldies) and the memory of the time and effort it took to compile the compendium in the first place has never made me inclined to publish an update - until now (see foot of article).

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.  

Recent newspaper headlines highlight the fact that more and more councils are now charging for services and that there is wide variation to such charges nationwide. A report in the Times (Councils hit households with £400 extra charges – Cost of services rises as authorities face cuts: 17th February 2011) suggests that many authorities are intending to increase charges for front-line services by up to 400% with parking, rubbish collection, burials, home care, libraries and pest control services being the worst affected.

Local authority members and officers leading service areas need to fully understand the basis upon which charges may be levied and/or increased in each particular sector or function.

It should also be remembered that the Courts can intervene to prevent an authority from acting illegally, irrationally or with procedural impropriety. Local authorities (indeed all public bodies) are required, when making decisions,  to act in accordance with the principles set out in the case of Associated Provincial Picture House v Wednesbury Corporation (1948) 1KB 223 – the so called Wednesbury principles – breach of which can provide grounds for challenge via judicial review. These principles include:

1. failure to direct itself properly in law
2. failure to take account of all relevant matters
3. failure to leave out of account all irrelevant matters
4. failure to come to a decision which a reasonable authority, properly advised, would have reached.

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.

Rob Hann is revising and updating his 1995 book on Local Authority Charging Powers which is being published shortly. For more information see www.lacaponline.com

The next article in this series examines commercial trading powers and compares and contrasts them with charging powers. The third article will outline the powers to undertake so called ‘shared services’ whereby local authorities, in a variety of forms, jointly agree to pool resources and/or to agree to supply services to each other for reasons of efficiency and better public administration.