On best behaviour

The government recently issued statutory guidance on Best Value. Melanie Carter explains why it strengthens the hand of those organisations looking to bring judicial review proceedings over funding cuts.

The Department of Communities and Local Government, after an expedited period of consultation, published guidance on 2 September 2011 for local authorities making decisions regarding the funding of charities, voluntary organisations, social enterprises and small business.

The Best Value Statutory Guidance (the “Guidance”) has statutory force and must therefore be taken into account in the exercise of funding decisions. It is issued under section 3(4) Local Government Act 1999 which states that, in deciding how to fulfil its Best Value duty (section 3(1) LGA 1999), local authorities have to take into account guidance issued by the Secretary of State which may cover the form, content and timing of consultations.

The Guidance applies directly to “Best Value” authorities (Best Value authorities are defined in section 1 LGA 1999 and include local authorities as well as other public authorities such as National Park authorities, Broads Authority, police and fire authorities, Waste Disposal Authority). The Ministerial Foreword, from Eric Pickles MP, states that non Best Value agencies of central government departments are also signed up to the “fair standards” set out in the Guidance.

The Guidance reflects many of the requirements of the Compact. Indeed, the Ministerial Foreword to the Guidance makes reference to the Government’s commitment to the Compact.

The Guidance can be downloaded from the Department of Communities and Local Government here.

Duty to consider Social Value

Section 3(1) LGA 1999 requires a local authority to have regard to a combination of economy (costs), efficiency (throughputs) and effectiveness (outcomes) when exercising the Best Value duty. Best Value decision-making takes into consideration a combination of these three factors and, “social value” can be a key consideration in reaching a decision. The Guidance reminds local authorities that social value should be considered when taking Best Value decisions.

In response to the public consultation on the draft Guidance, the Guidance, although not defining social value, now states “as a concept, social value is about seeking to maximise the additional benefit that can be created by procuring or commissioning goods and services, above and beyond the benefit of merely the goods and services themselves”. As the Ministerial Foreword suggests, this “plays to the long-term strengths of voluntary and community groups and small businesses”.

Now is an opportune moment for local authorities to reconsider how decision makers should assess social value in the decision making process. It is likely that organisations seeking to avert a funding cut will look to emphasise the social value that community engagement with service provision brings over and above just the goods and services themselves (ie: strengthening communities, providing local job opportunities etc.) and so a failure by a local authority to adequately assess the social value in the decision making process could be sufficient ground for an organisation to challenge a decision by a local authority by way of judicial review.

Consultation requirements

The Guidance also addresses what is expected by way of consultation in Best Value Authorities. Under section 3(2) LGA 1999, Best Value authorities are already under a duty to consult prior to making a funding decision. However the Guidance now sets out additional duties which may amount to requirements in public law and so a failure to follow the Guidance could result in judicial review challenges being brought. Indeed, anecdotally, there is increased activity by organisations subject to funding cuts to seek judicial review of the local authority decision.

The Guidance states that a Best Value authority must consult local people on the funding decision, including council tax payers, users of the service under consideration and those who appear to the local authority to have an interest “in any area within which the authority carries out functions”. Local authorities should ensure that practices adopted in relation to local consultation are sufficiently broad to encompass the requirements set out in the Guidance.

A Best Value authority should:

1. consult local voluntary and community organisations and small businesses;
2. consult at all stages of the commissioning cycle, including when deciding to decommission a service; and
3. be responsive to the needs of those organisations that will be affected by funding decisions.

The Fair Standards

The Best Value authority should comply with the so-called “Fair Standards”, that is, it should seek to avoid passing on disproportionate reductions in funding. The Guidance is clear that the reductions should reflect the reductions in funding the authorities are taking on themselves. In particular, Best Value authorities should:

• give at least three months' notice of an actual reduction to the organisation involved, and those affected, when reducing or ending funding;
• actively engage the organisation and those affected as early as possible prior to making a decision that: effects the future of a service, will have consequential effects upon assets used to provide the service and will have a wider impact on the local community; and
• make provision for the local community, organisation and service users to put forward options on how to reshape the service or project. The authority should assist this by making available all appropriate information in line with the government’s “transparency agenda”.

Importantly, the Guidance states that funding means both grant funding and funding received by way of fixed term contracts as well as “other support”. This definition is broad and local authorities should be aware that this will mean that changes to the majority of funding arrangements for charities, voluntary organisations, social enterprises and small businesses will be covered by the Guidance.

Comment

The Guidance will have statutory force so that if it is not taken into account and acted upon by a local authority, unless there is a good public interest reason not to, this will give grounds for challenge in judicial review. Much of what the Guidance provides is already the case under basic public law principles, but it will undoubtedly strengthen the arm of an organisation facing a cut where the local authority has not meaningfully consulted or engaged with them at all stages of the commissioning cycle (including decommissioning) and where the impact is disproportionate.

This will particularly be the case in relation to cuts which have equalities implications. As local authorities will be aware, the most successful challenges to funding cuts in recent years have centred round the public authorities compliance with the equalities duties and in particular whether a proper equalities assessment was carried out.

The Government response to the public consultation on the draft Guidance made it clear it was not considered necessary to make further reference to the statutory duties of local authorities under the Equalities Act 2010 in the Guidance. Nevertheless, whilst an equalities based challenge by an organisation facing a funding cut is unlikely, on its own, in the long term to result in the cuts being avoided and/or future funding being secured, it could, together with other arguments, particularly in relation to the Compact, force a local authority to the negotiating table with organisations which are looking to mitigate cuts imposed on their organisation. Already, such pressure has resulted in some local authorities reversing decisions made about funding cuts. However, in the majority of cases, such negotiations will only delay the inevitable funding cut. Nevertheless, local authorities must be alive to the reality that, even after a decision to cut funding has been made, it may be some time before the funding cut is fully passed onto the organisation.

Local authorities will need to be introduce mechanisms to  'actively engage' with the body facing the cut as a failure to do this, without good reason, will compromise the ability of the local authority to proceed as it intends.

It seems possible that the Guidance could spur on a new line of public law challenge – that the cuts proposed are 'disproportionate' given the impact this will have on the service in question– and this could be potentially problematic for local authorities. Arguably, demonstrating that a proposed cut is disproportionate will be an easier hurdle to cross for an organisation seeking to challenge a funding cut rather than having to show that the decision taken was wholly unreasonable/irrational.

Local authorities should expect that organisations subject to funding cuts will scrutinise whether the Guidance has been properly considered and reasons for departing from its provisions have been properly recorded. If the Guidance has not been properly taken into account, this may well give grounds for judicial review.

Melanie Carter is a partner at Bates Wells and Braithwaite. She can be contacted by email at This email address is being protected from spambots. You need JavaScript enabled to view it. or on 020 7551 7610.