Point of law - A sense of wellbeing by Stephen Cirell and John Bennett

31 May 07
The government's legal reforms have given local authorities more flexibility to deliver services in the most efficient way, with initiatives such as the London Authorities' Mutual Ltd insurance company

01 June 2007

The government's legal reforms have given local authorities more flexibility to deliver services in the most efficient way, with initiatives such as the London Authorities' Mutual Ltd insurance company

The government recognised in its first term that to deliver promised public service reforms, it would need to address deficiencies in the legal framework, such as uncertainty over the extent of powers; financial restraints; few opportunities to charge for services or trade; and lack of power to experiment.

One major reform was to introduce new powers of community initiative or wellbeing, via section 2 of the Local Government Act 2000. The setting up of a captive insurance company — London Authorities' Mutual Limited (Laml) — by a number of London councils shows the improvement offered by the new powers.

The idea behind Laml is that local authorities club together to form an insurance company to provide risk management for members for lower premiums than a commercial firm would charge. It could also even deliver a financial surplus that could be ploughed back into services. It ticks all the right boxes: Best Value; Gershon efficiency; transformational government; and joint working. But it would have been much more difficult before the new wellbeing powers.

This is because there are no specific powers allowing councils to insure. Public law works through Parliament granting the key powers and the gaps being filled by incidental powers, such as section 111 of the Local Government Act 1972. Where any scheme is proposed, it should be a relatively simple task of construing relevant powers and forming a view as to whether the proposed action is covered by those powers.

Sadly, it is often a lot more complex than this, with widely differing views about the legality of schemes even among lawyers. Those subscribing to the most positive view of powers would argue that section 111 would always be sufficient for this purpose. After all, Municipal Mutual (now part of Zurich Municipal) was established early in the twentieth century by councils using these powers. But the legal landscape has become substantially more uncertain in the intervening years.

This is why the wellbeing powers were introduced. They were Labour's version of powers of general competence but were diluted into wellbeing to make them fit local government's purpose better. They were cleverly drafted to be wide and useful and avoid some of the more restrictive legal arguments that had been so problematic in the past.

Section 2 permits a local authority to do 'anything' that is likely to promote or improve the economic, social or environmental wellbeing of its area. The only limitation on this new general power was featured in section 3, whereby the new powers could not be used to do anything a local authority was unable to do by way of any 'prohibition, limitation or restriction' on its powers.

The Laml project shows how these powers work. There are no specific powers in relation to insurance, although it is mentioned in various other powers as a subsidiary. For example, it is recognised that authorities might insure members where an indemnity has been given. So the wellbeing power — described by the Department for Communities and Local Government as a power of 'first resort' — should be considered. This is a stand-alone power which, unlike section 111, does not need to be joined to another council function. So the Laml authorities needed to consider whether the proposal would promote or improve the wellbeing of their areas. It's likely a good case can be made that setting up the company will improve economic wellbeing.

The government produced guidance supporting these powers to which authorities must have regard. Fortunately, this was written in the shadow of years of legal interpretation problems and so was refreshingly positive. It makes clear that local authorities can set up companies using these powers and can both innovate and experiment. This supports the Laml initiative.

The wording of section 2 is also very important. The use of the word 'likely' means that Laml does not actually have to succeed to be lawful. It might fail in due course but provided the authorities believed it was 'likely' that it would have a wellbeing effect, then the power is there. As it is the authorities' view — not anyone else's — that counts, it clearly encourages experimentation to improve services.

Finally, there is the brake of section 3 and whether there is a prohibition, limitation or restriction on the use of section 2. Case law has been helpful here and in a case involving the London Borough of Lambeth, the Court of Appeal held that section 3 does not apply if there is an absence of a specific power, as opposed to an express prohibition. In the case of Laml, there is no prohibition on councils establishing a captive insurance company and so section 3 does not apply.

The government has endured criticism about its public policy reforms but it has worked hard to give local authorities the legal tools they need to deliver better services.

Stephen Cirell is head of local government and Professor John Bennett is a consultant solicitor with Eversheds. They are authors of Best Value: Law and Practice published by Sweet and Maxwell

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