Local Government - November 2009
LAML and the well-being power
Many words have been written about the LAML
case, but the saga has moved on, and become political, and we
thought we should take a broader look at the central
issue.
To start with, let us clear up a couple of
misconceptions. First, no one has ever suggested that
participating in LAML was irrational, perverse or even unwise in
the slightest. Secondly, leaving the procurement issue aside,
Moore Bick LJ made it clear in the Court of Appeal that, had
joining LAML been within the scope of Brent’s legal powers, there
was nothing wrong with the way they were exercised. Whether
you call it “vires” or “legal powers”, the LAML decision is simply
about what local authorities can and cannot do.
For as long as anyone can remember, and
probably since the dawn of civilisation, national government has
tried to limit what local government can do. The reason is
rarely made clear. Is it just political and intellectual
arrogance, or raw power-broking, or does it perhaps really matter
to the health and wealth of the nation? Whatever the reason,
there is a tug of war, and sometimes local government is given new
powers, but always grudgingly and with strings attached.
Central to the LAML case was an analysis of the strings attached to
the supposedly string-free well-being powers.
The predecessor to the well-being powers was
section 137 of the Local Government Act 1972. This allowed
local authorities to spend a limited sum of money on anything
which, in their opinion, would benefit their area, or part of it,
or all or some of the inhabitants of their area. In 1979, at
the request of the Afghan government, the USSR deployed troops in
Afghanistan to suppress an insurgency. Such things
happen. In consequence, a number of nations decided to
boycott the 1980 Moscow Olympics. The Conservative UK
government supported the boycott, and refused to send a team, but
allowed individual athletes to attend. Some Labour local
authorities wanted to pay their expenses. Did they have power
to do so? They said they could rely on section 137, because
it would benefit some inhabitants, namely the athletes. But
what, said the sceptics, about those authorities that only wanted
to support one athlete? Section 137 is expressed in the
plural. No problem, said the authorities, their mums and dads
live in the borough, and they will also be pleased. This kind
of thinking led, in 1989, to amendments to section 139, whereby the
benefit had to be both “direct” and “commensurate with the
expenditure”. At least the government said, if not quite in
so many words, that they were making changes because local
authorities could not be trusted. They might do things which
were not sensible, or, to put it another way, which were different
from what the government would have done. At the same time, a
wearisome procession of vires cases filed through the Courts.
They pondered many intricate arguments, and, in the end, decided
that Parliament could not possibly have intended to allow local
authorities to do this strange and dangerous thing, whatever it may
have been, and found against the authority. Council lawyers
became the people who told you that you could not do things, and
there was much woe.
The Labour manifesto in 1997 said that local
government should be less constrained by central government, but it
did not promise a new general power, nor did the new government’s
first local government white paper. They promised a new duty
to promote well being, alongside the new community strategy.
This is the same structure as for best value: a new statutory duty
and a statutory plan. But everyone accepts that the best
value duty does not confer a new general power (otherwise the LAML
case would never have happened), so presumably the well-being duty
would not have done so either. There was, however, a clamour
for a power of general competence, and the duty suddenly became a
power, limited only in that it was not to be used to generate
income (except by accident), and did not permit you to impose
regulatory requirements on others or to do anything that was
expressly forbidden by another statute. The statutory
guidance made it clear that this was a “power of first
resort”. A string of cases stressed the breadth of the
power. These were generally cases where people had asked the
local authority to do something for them and instead of saying “we
don’t want to,” the authority had foolishly said “we can’t” and
then found that they could.
The gaps are being filled. From 2003,
income could be raised by charging and trading, and, perhaps, if
the 2007 removal of the requirement for bylaw approval is ever
brought into force, local authorities will have a reasonably free
power to regulate.
This was an earthly paradise of powers, where
everything was intra vires. Local government lawyers became
enablers, although the absence of pointless litigation reduced many
to begging in the street. But the dark shadow of the vires
cases was never far away and, with the Court of Appeal’s decision
in LAML, there is fear and trepidation in the land again.
The actual decision has been analysed to
death, but in short, these are the central propositions.
First, establishing, capitalising and
participating in a local authority mutual is outside section 111 of
the Local Government Act 1972, either because it involves the
assumption of risk and is “somewhat speculative” (Pill LJ), or
because it is “complex” (Pill LJ) and “more elaborate” and so “can
less easily be regarded as incidental to the performance of the
authority’s functions” (Moore-Bick LJ).
Secondly, those activities are outside section
2 of the 2000 Act – the well-being powers – either because the old
cases make it “unlikely that Parliament conferred a carte blanche
on local authorities” and “the guarantees and degree of
speculation… take the activity beyond what Parliament intended by
the well-being clause” (Pill LJ) or because “there must be some
degree of connection between the authority’s actions and the
promotion or improvement of the area’s well being” but “action to
reduce the costs of goods or services… which does not have as its
object the use of the money saved for an identified purpose which
the authority considers will promote or improve well-being does
not… fall within the section” (Moore Bick LJ).
So there is no power to establish an insurance
mutual. But what are the wider implications?
Imagine a new back office shared service
arrangement, or joint venture. Under what power is it
made? It is likely be outside section 111 if it involves an
excessive assumption of risk and can be described as “speculative”,
or if it is too elaborate. The problem is that, away from the
extremes, there is no certain way of knowing which arrangements
meet these tests and which do not.
It does not, on its own, promote
well-being. It saves money. It will be outside section
2 if the speculative element is not what Parliament had intended,
having regard to the pre 2000 case law, but no one knows what this
means. It will also be outside section 2 if there is no clear
intention to use the money saved for well-being purposes.
Where does this take us? Does there have to be a link between
the way the money is saved and the way it will be spent, or can
they be totally unrelated? What degree of certainty does
there have to be about the spending promise? If all that is
needed is a sentence in the report saying “we will use the money
saved to provide better social services or alternatively reduce the
Council tax” then the whole thing is farcical. Is this what
the Court of Appeal intended?
In the vast majority of cases the LAML
principle will not cause a problem, but if the arrangements are
more elaborate, more money is at stake, the risks are higher, there
is no obvious related spending, and the administration are
unwilling to make binding spending promises this side of
budget-making, then it will be very difficult to know if the scheme
is legal or not. Opinions vary as to the importance of
this. Pessimists say that it strikes at the heart of shared
services arrangements. Optimists say that the LAML case is,
more or less, peculiar to its own facts, because risk pooling
arrangements are always going to be complex and risky, and section
2 would have been satisfied if Brent’s report had contained a
statement about how the cost savings would be applied.
There may be other ways of achieving the same
objective. The delegation of functions, or a joint committee,
is clearly intra vires. The Local Authorities (Goods and
Services) Act 1970 allows local authorities to supply
administrative, professional or technical services to other local
authorities and certain other public bodies. If you are going
down either of these roads, however, you have to abandon section 2
and set up a structure which genuinely embodies these
principles. We do not think that the power to trade through a
company helps, though, because it only allows you to do for a
commercial purpose something that you could do already for a
non-commercial purpose.
The pessimists think, therefore, that the LAML case has undermined
section 2, by requiring the direct promotion and improvement of
well being (as opposed to indirect, through saving money which can
be used for well-being purposes – remember the Moscow Olympics and
the amendments to section 137), by reintroducing the old case law
which section 2 was meant to consign to history, and by introducing
another layer of legal uncertainty.
So the LAML case has led to another hue and
cry for a general power of competence. What was the
government’s response? After some shilly-shallying, it has
emerged as a late amendment to the Local Democracy, Economic
Development and Construction Bill. The new clause, introduced
in Parliament on the 13 October, gives government the ability to
make regulations enabling local authorities to enter into insurance
mutuals, and does no more that that. This is welcome, but it
does absolutely nothing to rebuild confidence in the well-being
powers. In fact, if it reduces the chance of a review of the
LAML judgement by the House of Lords, it may be positively
damaging.
Meanwhile the Conservative Party has completed
a long, slow U turn. It now trusts local authorities.
The February 2009 “Control Shift” policy paper promises to “enlarge
the freedom of local councils to act in the best interest of
residents, by giving them a ‘general power of competence’”.
They promoted an amendment to the government’s new clause.
This would have replaced section 2 with the following:
“Every local authority has full powers and
capacity to carry on or undertake any activity or business, do any
act, or enter into any transaction with full rights, powers and
privileges for so doing… subject to (a) this Act…(b) any other
enactment and (c) the general law.”
The opposition amendment fell. The
Minister’s response in Parliament was this:
“We are aware that the decision in the LAML
case raised concerns about the scope of local authority powers, and
through the “Strengthening local democracy” consultation we have
sought to better understand them. We have acted speedily to answer
the immediate concerns raised by the case, so as to ensure that
best value authorities can take part in insurance mutuals.
As part of our commitment in the consultation,
we are considering whether there are other cases in which existing
local authority powers are not sufficient to enable them to improve
services and achieve efficiencies. However, they are complex issues
that need careful consideration. I assure the House that we are
committed to such consideration following the recent consultation,
but I am concerned that “power”, as it is expressed in the
amendment, would not give councils the certainty that they need if
they are to take part in mutual insurance. Indeed, the Court of
Appeal judgment, which in a sense is at the root of the Government
amendments, indicated that any general power would be unlikely to
provide local authorities with the necessary confidence to engage
in mutual insurance and similar arrangements. We are introducing
our amendments today to address that problem, but, as I have said,
we are committed to considering other ideas that came forward in
the consultation.”
The Government spokesman in the Lords said
much the same – they need to consult and debate.
We do not know what the Minister thought was
wrong with the Conservative clause. The “Strengthening Local
Democracy” consultation also said that that “changing the
well-being power or introducing another form of general power would
not be certain to ensure local authorities could engage in mutual
insurance arrangements”. Nothing is certain in this life, of
course, but this claptrap means one of three things: the CLG
legal team have told the minister that it is impossible to draft
legislation conferring a general power of competence, neither
ministers nor the CLG trust the courts, or the government wants to
hit the thing into the long grass. The other possibility is
that all three are the case.
And, sadly, the consultation paper reiterated
the old refrain: “tell us what new powers you need and we will
think about granting them.” This will get the same answer:
“we don’t know what we will want to do in the future because we
haven’t thought of it yet”. This is as sterile as the other
exchange, in which central government whinges that insufficient use
is being made of section 2, as though it was an special toy that we
had been given for Christmas, and local government says that it is
using it all the time but that the whole point is that it shouldn’t
have to worry about such things any more.
Next, the government will announce their
response to comments made in consultation. It will not matter
much what it is, because the chances of further legislation this
side of the election are remote, and, whoever wins, there will be a
new minister, and a new white paper, and time will pass.
Meanwhile the pessimists (who evidently include the CLG) and the
optimists will offer their different opinions, and the well-being
powers will limp wounded into an uncertain future.
Graeme Creer,
Partner
Weightmans LLP