23 May 2008
The government pushed ahead with its plans for unitary councils, legalising its actions only after the event and accepting blatantly optimistic savings estimates. This has serious implications for governance in general, argues Michael Chisholm
Five county councils will become unitary authorities in April 2009, and two other counties will each be divided into two unitaries. These changes have been almost ignored in the national media, despite the process employed. For the government acted outside the relevant statutory provisions, accepted unreliable financial data and was selective in its use of evidence. These defects have implications for every aspect of the governance of the country.
The Local Government Act 1992 provided a procedure for creating unitary councils, involving the Boundary Committee of the Electoral Commission. But in 2006 the then local government secretary Ruth Kelly invented a new process. The legal authority for this was provided retrospectively by the Local Government and Public Involvement in Health Act 2007, effective from November 1, towards the end of the reorganisation process. Several local authorities affected by the decision sought a judicial review, which was heard by the Court of Appeal in January 2008. The judges said that the local authorities ought to be able to enjoy the protections provided by statute but that they were powerless to uphold the application because the proceedings had been legalised by the 2007 Act.
As a matter of urgency, a political settlement is needed that would prevent this dangerous precedent being followed in other domains of public life.
But it does not stop there. A major justification for replacing two-tier structures with unitary councils was that it would reduce the cost of local service provision. However, virtually all the savings accepted by the government were gross, with no adjustment for additional recurrent costs, such as area governance, to give net figures. It was misleading to tell Parliament that five unitary counties would save 'over £75m annually' without noting that the figure was for gross savings.
This simple defect reveals fundamental weaknesses in the government's approach to public expenditure. It also reveals deficiencies in the capacity of Parliament to detect basic inadequacies in the information provided by the government.
When local authorities were invited to submit unitary proposals to the Department for Communities and Local Government, they were asked to supply a 'business plan' for the proposed structure, including transition costs and recurrent savings. No checklist of the items to be included was provided. For example, there was no provision for IT transition costs in the ultimately successful proposals for unitary status for Northumberland and Shropshire or for the two councils in Cheshire.
Of the 16 proposals that went forward for consultation, eight made no provision for extra recurrent costs for harmonising county and district staff pay in a single workforce. Like was not compared with like.
Many of the component figures were not credible. Durham County Council's bid contained £0.5m as the transition cost for IT and property, an incomprehensibly small sum. Cornwall County Council estimated £3.8m for IT transition costs but acknowledged that this was for the 'tactical fix' only.
Heroic assumptions were made in estimating recurrent savings. Cornwall included £6m, one third of its claimed annual savings, on the basis that the cost per resident of each district service would be reduced to the county average, an assumption that ignores numerous factors. For example, the cost of administering planning is affected by the volume of business. In any case, aren't councillors supposed to decide expenditure priorities, at least in some degree? The figure of £6m was justified with fewer than 60 words.
Durham adopted an equally speculative approach to estimated savings in the central administration of district services, amounting to £6.5m, almost one-third of its total. These savings were additional to those associated with identified staff reductions. In this case, the 'new model' was apparently based on the fact that CIPFA data show counties have proportionately lower recorded central costs than districts. On the dubious assumption that these recorded differences are entirely due to differing efficiencies, the county reckoned that central costs for district services (excluding housing benefit) should be 1.9%, the same percentage as for the county (excluding schools).
Many more examples could be given of cost estimates that cannot reasonably be accepted. But the DCLG did not probe at all thoroughly. During the preliminary vetting in January to March, only pay harmonisation was raised, but it was not followed up. The figure of 'over £75m' annual savings given to Parliament can be compared with the aggregate originally provided by the bidders, £78m, which had been revised to £78.3m by the end of the consultation period. For all practical purposes, the DCLG accepted the self-assessments by the five successful counties.
Those proposing unitary structures did not feel the need to alter their figures in the light of the comments and criticisms by councils that objected, a stance that could be taken only if the proposers felt confident that there would be no serious probing by the DCLG. Of all the successful proposals, it was only in Bedfordshire and Cheshire that the department accepted figures notably different from those submitted, these being the extreme cases of implausibility. And the change came long after the announcement of the provisional decisions in July.
Embedded in the process was the following problem. The DCLG handled the whole process, for which it was ill equipped and about which its own position was decidedly partial. Those making proposals were tempted to exaggerate annual savings and minimise transition costs to a greater extent than would have been the case had there been disinterested evaluation.
In several cases, councils submitting bids employed professional financial consultants. Cornwall used PricewaterhouseCoopers and claimed that this firm had 'verified' its figures. In fact, PwC's letter explicitly stated that it had not checked the assumptions or the arithmetic, nor had it carried out an audit of the financial case.
In other cases, consultants failed to point out the inappropriate use of gross savings figures and failed to challenge their clients about unrealistic exclusions or inclusions in the financial assessments.
The DCLG has refused to disclose the reports from the financial consultants it employed, claiming exemption under the Freedom of Information Act section 35(1)(a). These reports are deemed to be advice to ministers. 'Withholding this information is necessary to preserve thinking space around ministers and disclosure could inhibit free and frank discussion within government,' the DCLG said.
The creation of a small number of new unitary councils has destabilised the structure of local government in the English shires, and also threatens London and the metropolitan areas. It is known that some councils will propose unitary reorganisation at the first opportunity. The average population of the nine new unitaries is 348,000, which compares with 304,000 for the metropolitan councils, 236,000 for the London boroughs and 182,000 for the 46 existing unitary councils, calling into question their suitability in today's circumstances.
Following the reorganisation in 1974, there has been piecemeal change to the structure of local government in England. The time has come to stand back and ask what local government is supposed to do, the powers that are necessary and the appropriate financing, and then to consider what structure or structures would be appropriate. Instead, the 2007 Act provides for further piecemeal change, in which the advice of the Boundary Committee need not be requested.
The experience of the 2006–2008 process shows that the government cannot be trusted to do a proper job. Consequently, the provisions of the 2007 Act need to be reviewed in the context of the wider consideration that is urgently needed.
Michael Chisholm is co-author of Botched business: the damaging process of reorganising local government 2006—2008, which was published by Douglas McLean Publishing on May 22. He is a former member of the Local Government Boundary Commission for England and the Local Government Commission for England and wrote several reports on the 2006—2008 unitary plans
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