The Supreme Court’s decision in the LAML litigation, combined with the power of general competence contained within the Localism Bill, promises a welcome boost to the shared services agenda, but the reality may be less radical than many commentators suggest.

The need to charge and trade

Like all other public bodies local authorities are expected to “do more with less”, but simply seeking efficiencies, even in better days, often was not sufficient to make ends meet, not without also making use of the powers to charge and trade.

It is difficult to ascertain exactly what percentage of local authority expenditure originates from charging and trading initiatives, but most sources agree that there is significant scope for increasing it. The complexity of the legislation is the usual reason given for councils’ reticence to utilise the powers, and despite the introduction of the wellbeing power under section 2 Local Government Act 2000 a certain nervousness remained and anxiety surrounding the Court of Appeal’s decision in the LAML case has scarcely helped matters.

Even when the outlook was brighter, however, councils struggled to meet increasing demands merely by reducing overheads, wastage and disposing of surplus assets. A vanguard of authorities set the pace in innovation, seeking to rely on charging and trading powers to boost their revenues and where a specific power was absent, attempts were made, often unsuccessfully, to rely on the ‘incidental’ power in section 111 Local Government Act 1972.

The back-story: problems and obstacles

The problem, historically, was that the powers to charge and trade came from a patchwork quilt of provisions such as the Civic Restaurants Act 1947. Later these provisions were beefed up by more general powers, most recently the Local Government Act 2003. Under these provisions, trading can only be carried out by a company, in order to prevent local authorities from capitalising on their favourable position (as custodians of the public purse, unconstrained by the demands of shareholders) to the detriment of private providers operating in the same market.

The LAML plot-twist

The high water mark came with the LAML case, which successfully challenged the ability of local authorities to form an insurance firm, a case which undermined local authorities’ confidence at a time when they were already feeling the pinch. The danger, in light of the recent partial reversal of the Court of Appeal’s decision, is to overlook the fact that the reversal is just that, partial. The Supreme Court has rightly overturned the decision in respect of the procurement aspects, which focused on the so-called Teckal exemption – but left the decision as to vires untouched. Even so, many see the decision as a boost for local government innovation. The provisions of the Localism Bill are supposed to be a further shot in the arm for authorities wanting to charge, trade and innovate.

Enter the Localism Bill

As has been widely trailed, the Localism Bill introduces, for the first time, a general power of competence, something traditionally anathema to local authorities which, as we all know, are “creatures of statute” capable of doing only what they have specific statutory power to do. Before we all rush out and pour the dwindling remains of our reserves into Brazilian logging camps, there are hauntingly familiar notes of caution to be sounded.

One important thing that the new provisions retain from the old regime is that if a local authority is already obliged to do something in respect of an individual (or a class of individuals) then the cannot, as a result of the proposed new power, begin to charge for it. This much should come as no surprise.

Voices off

At this point the strains of an even more ancient melody strike up. Those grandes dames rationality, lawfulness, procedural fairness, relevant considerations and good governance are not drowned out by the trill of the new Localism prima donna any more than they were by the well-being power back in 2000.

Notwithstanding the high ideals of the Localism Bill’s promoters and the claim that the Bill will be “fireproof” and not susceptible to subsequent judicial limitation in the way that happened in LAML, the power will still have to be exercised in accordance with the principals of public law. The difference, this time round, is that the imperative for local authorities to “do more with less” is more compelling now than it was in 2000 or possibly at any time before.

Poetic justice

So what we see happening is, on the one hand, a desire by the Government to answer local authorities’ demands to unfetter them and in so doing allow them to make up the massive shortfalls resulting from public spending cuts; balanced, on the other hand by the stubbornly persistent principles of public law which even a seismic shift like the power of general competence is powerless to eradicate.

As to what the future holds, we are once again likely to see a vanguard relying on the new provisions, bringing forward schemes ranging from the innovative to the precocious and it is not beyond the realms of possibility that we will see another LAML case which, despite the best intentions of the Localism Bill’s promoters, reaffirms limitations that were waiting in the wings all along.