General Power of Competence |
Letter from Rt Hon Eric Pickles MP, Secretary
of State for Communities and Local Government to the Chair
Localism Bill: Operation of the general power of competence
Thank you for your letter of 24 January enclosing
some questions from your Committee about the principles and intended
operation of the general power of competence for local authorities.
I understand that the Committee is keen to consider
these issues before the Bill reaches report stage in the House
of Commons and my response to your questions is therefore attached
as an annex to this letter.
I hope that my comments will enable your Committee
to better understand the principles and practice behind the operation
of the general power of competence and provide some reassurance
around the approach taken in drafting the power and the freedoms
and safeguards that the provisions will operate under.
Rt Hon Eric Pickles MP
Secretary of State for Communities and Local Government
21 March 2011
General Power of Competence - CLG Select Committee Questions
1. The general power of competence is based
on providing local authorities with the same powers as an individual.
Why did the Government decide to take this approach rather than
abolishing the ultra vires principle in respect of local authorities?
In particular, did the Government consider introducing
an equivalent to section 39 of the Companies Act 2006 to protect
the legality of actions performed by local authorities? If so,
why was this option rejected?
We consider that the power in clause 1 of the Bill
will remove much of the doubt about the scope of local authority
powers. Activities that individuals can undertake will no longer
be able to be found to be 'ultra vires' because they are not expressly
provided for in legislation, or are of a type that are not normally
associated with a local authority, or other public body.
Section 39 of the Companies Act was considered in
the development of our proposals. That section states that the
validity of an act done by a company shall not be called into
question on the ground of lack of capacity by reason of anything
in the company's constitution. This approach was rejected for
several reasons. Firstly, as local authorities do not have constitutions
in the same way that companies do a direct analogy is not possible.
Secondly, while section 39 provides protection for third parties
in their dealings with companies, it does not prevent the action
in question from being ultra vires (and so does not, for instance,
protect the position of an officer or employee of the company
in relation to the company). It was felt, therefore that such
an approach would not go far enough to ensure that officers and
members of local authorities can be confident that actions proposed
are actually lawful, as opposed to simply being binding.
Giving local authorities the same powers as individual
means that they have the power to do anything a natural person
can do, so the capacity of the authority, in this sense, will
not be open to challenge. However this approach means that the
general power does not extend any new powers to interfere in the
rights of others - for instance powers of coercion or taxation.
It is right that such powers should continue to be expressly provided
for where necessary. And citizens will still be able to challenge
the reasonableness of an authority's decisions and whether proper
procedures have been followed. Again it is right that this protection
It is important that the general power should not
only increase local authority powers, but increase the confidence
of local authority officers and members in the scope of those
powers. It is felt that the concept of the powers of an individual
has the added advantage of being understandable by lay people
and not just lawyers.
2. In what ways will the general power of
local authorities to trade in new ways (such as providing banking,
estate agency or insurance services to its local residents);
the ability of local authorities to raise revenue and vary rates
of taxation (such as altering tax rates and discounts to incentivise
citizen behaviour or small business development)?
Local authorities already have wide powers to trade,
including those provided by the Local Government (Best Value Authorities)
(Power to Trade)(England) Order 2009, made under sections 95 and
96 of the Local Government Act 2003. This Order allows local authorities
to do for a commercial purpose anything which they are authorised
to do for the purpose of carrying on any of their ordinary functions.
Clause 4 of the Localism Bill places limits on the
general power in relation to commercial activities, in line with
the provisions of the 2003 Act. However, as the general power
widens what a local authority in general may do, it necessarily
also widens the scope of what it may do for a commercial purpose.
I understand that the New Local Government Network
in their 'Going Nuclear' paper suggested that providing banking,
estate agency or insurance services might be some of the ways
in which councils may choose to use the new general power. However,
it is not for Government to say how councils might use the power.
The Bill also contains provisions at Clause 36 that
would give local authorities a wide power to grant business rate
discounts at their discretion, thus enabling local authorities
to respond to local circumstances by reducing business rates bills.
3. What is the rationale for preventing local
authorities from imposing charges that exceed the cost of provision
year on year under clause 3(3)? Given the desire to encourage
creativity and innovation, would it be better to enable local
authorities to cross-subsidise services or to maximise revenue
opportunities subject to local democratic constraints?
Clause 3 restricts the ability of a local authority
to charge for providing a service to a person using the general
power, or where they are using an overlapped power. Local authorities
can charge up to full cost recovery for discretionary services
- that is those that they are not required by legislation to provide,
unless specific charging powers exist. This is in line with the
charging powers in section 93 of the Local Government Act 2003.
Charging above cost recovery means making a profit - which will,
in effect, be acting for a commercial purpose. In this case the
restrictions in clause 4 and not clause 3 apply and such activity
must be carried on through a company. The rationale for this requirement
is explained in the answer to question 5.
4. Can a local authority that is entitled
to exercise the powers of an individual decide, for example, to
gamble, make political donations or purchase stands at party political
conferences? In other words, does the general power of competence
increase the risk of public funds being abused?
Clause 2 will require local authorities to act in
accordance with statutory limitations or restrictions. These include
strict rules on using public money for political purposes, for
instance those surrounding political publicity set out in the
Local Government Act 1986 and the restrictions set out in the
Political Parties, Elections and Referendums Act 2000. In addition,
the general legal framework in which local authorities operate,
coupled with the range of safeguards in place concerning the financial
control systems of local authorities, should provide adequate
assurance that councils will act both lawfully and with due regard
to the proper use of public money. The Secretary of State will
also have powers to set conditions around use of the power or
to prevent authorities acting in specified circumstances, should
this prove necessary.
5. What is the rationale for requiring local
authorities to pursue commercial activities through a company
under clause 4(2), rather than allowing local authorities to decide
which type of commercial vehicle to use? Does this also undermine
creativity and innovation?
The requirement in clause 4(2) of the Localism Bill
that local authorities must pursue commercial activities through
a company is consistent with the trading provisions in section
95 of the Local Government Act 2003 and reflect government policy
that local authorities should not be able to use their public
status to gain commercial advantage over the private sector. We
do not consider that this will prevent local authorities from
acting creatively and innovatively.
6. Is there any merit in the Localism Bill
including a statutory mechanism providing local authorities (or
others) with a channel to ask central government to take action
(under clause 5) on the powers available to local authorities,
similar to the mechanism contained in the Sustainable Communities
We have made such a channel available without the
need to include provisions in the Localism Bill. Councils have
been invited to submit ideas via a dedicated 'barrier busting'
website (http://barrierbusting.communities.gov.uk/) and they will
be able to follow the progress of their suggestions online. Users
of the service are given a unique tracking number to monitor requests
and a named 'barrier buster' is assigned to each case. Anyone
can use this route to highlight a barrier, and councils can use
it to champion proposals inspired from local peoples' ideas under
the Sustainable Communities Act. Anyone who uses the Act to highlight
barriers will have the opportunity to benefit from the services
of the 'selector' - we will be consulting shortly on this.
7. Should local authorities have access to
some kind of guidance or prior-authorisation mechanism to provide
reassurance that any novel uses of the general power are considered
lawful and therefore unlikely to be the subject of successful
legal challenge once significant resources have been invested?
No. We are keen to reduce the culture of local government
dependency on central government. The general power of competence
has been designed to give councils the confidence to act, using
the power as their primary tool, without needing to refer back
to central government. How they use the power is up to them -
that's what decentralisation means. A pre-authorisation mechanism
would totally undermine this approach. In response to local government
sector views and our policy on localism, we wish to keep guidance
to a minimum.
8. Has the Government set a timetable for
reviewing existing legislation to ensure that current statutory
powers and restrictions are both satisfactory and coherent in
light of the proposed general power of competence, including in
particular the provisions of the Local Government Act 2003? How
long would you expect this process to take?
We are intending to review existing restrictions
and limitations to see whether they can be removed to encourage
this devolutionary, cultural shift. We want councils to be able
to act confidently, using the power as their primary tool. We
hope that councils will use the barrier busting website mentioned
above to bring obvious candidates to our attention at an early
stage. We will be considering the scope and timetable for any
such review shortly.
9. Under what circumstances would the Government
consider limiting the general power of competence under clause
5? Have any types of activity already been identified as potential
targets for action under clause 5?
We feel very strongly that the general power of competence
should not be subject to unnecessary conditions or restrictions.
However the ability to set conditions around the use of the power
and restrict its use is a necessary safeguard to protect ratepayers
and the Exchequer. This is not intended to be a power that is
used lightly - it will require full consultation, and scrutiny
by Parliament before approval. Currently there are no plans to
use these powers.
10. What account will the Secretary of State
take of local views on the powers which a local authority ought
to have when exercising his powers under clause 5? Is there merit
in providing a mechanismsuch as a local referendumto
enable local control over the powers available locally?
Before making any order under clause 5, there must
be consultation as described in that clause, which will enable
the Secretary of State to be aware of and take account of local
views, as appropriate. The only exception to the requirement for
consultation is in the very limited circumstances where an order
is only widening or limiting the local authorities to which an
earlier order setting out restrictions or conditions applies.
It is for local authorities to decide how to exercise
their powers - and to answer to their local communities about
how they do this. The Localism Bill will empower local people,
to instigate local referendums on any issue. Ultimately, through
its democratic mandate, a local authority will be judged on its
results and as such, councillors will be held to account through
the ballot box.
11. Is there a danger of local authorities
discovering that their ability to work with other public bodies
under the general power of competence (such as health bodies)
is frustrated because the Localism Bill has failed to address
whether other public bodies have adequate powers to work with
local authorities? Should other public bodies also be given a
general power of competence?
There is no 'one size fits all' general power. The
powers which are appropriate for a body depend on its purpose
and functions. The breadth of the general power of competence
for local authorities recognises the breadth of their role and
their electoral mandate. The fundamental questions to ask in each
case is whether the body in question has all the powers necessary
to meet its purpose, or 'objects' including effective joint working.
However, the feedback we have received so far is
not that organisations lack the competence to engage with local
government but that they may be unwilling or do not feel empowered
to do so. The ring fencing of funding and performance regimes
have pulled organisations towards central accountability regimes
which has made it difficult for local innovation and engagement
on cross cutting outcomes. Spending Review and Coalition Government
changes are addressing this.
More specifically within DCLG, the original vanguard
communities were identified as training grounds for the Big Society
approach to decentralising power and identifying where bureaucratic
barriers were stopping local people from taking the lead and shaping
their local areas - as a result of this work we are removing unnecessary
legislation, regulations or burdens in the way of community action
that can be applied across the country - including outdated byelaws,
data burdens and archaic rules. More recently, other councils
have approached us with innovative proposals for their communities
and we look forward to working with them to strengthen local partnerships
and remove central barriers to help turn their ideas into reality.
In addition, the 16 first phase Community Budget
areas are developing local solutions for families with multiple
problems. The range of issues affecting such families requires
the collaboration of a wide range of organisations - including
the voluntary and community sector. Community Budgets support
this by enabling areas to shape funding around such families delivering
more effective outcomes and avoiding wasteful duplication of services.
Government is committed to supporting places to tackle barriers
to local innovation.
12. Should all public bodies be placed under
a statutory duty to work collaboratively with local authorities
and each other?
This Government's agenda for decentralisation means
fewer Whitehall diktats and increasing autonomy for local institutions
and people. In the current financial climate it makes good economic
sense for all public bodies to work together collaboratively -
and we hope that the general power of competence will give local
government the confidence to enter into collaborative partnerships
without wondering whether they have a specific power to do so
or not. However there are examples where the Government requires
co-operation between councils and other public bodies - for example
clause 90 of the Localism Bill will place a duty on local planning
authorities and public bodies to engage constructively, actively
and on an ongoing basis in the planning process. It will be a
key element of our proposals for strategic working once Regional
Strategies are abolished. The duty will promote a culture change
and new spirit of partnership working by local authorities and
public bodies. Working alongside the incentives that we're implementing,
such as the New Homes Bonus, it will act as a strong driver to
change the behaviour of local authorities.
13. Does the proposal for a general power
of competence that is based on the powers of an individual fail
to take account of the unique constitutional role of local government
as distinct from an individual? Has the Bill missed the opportunity
to meet the broader challenge of reforming the constitutional
role and status of local authorities in addition to their available
The Localism Bill is intended to bring about a shift
of power from Westminster to local people via their local authority.
A new constitutional framework for local government would be
a complex matter requiring careful consideration alongside wider
questions such as those around a written constitution. The Political
and Constitutional Reform Select Committee is currently considering
the potential codification of the relationship between Central
and Local Government and it would be wrong to pre-empt this inquiry.