01 August 2008
The Labour government has been keen to use legislation to push through its public sector reform agenda. However, there are unintended consequences when powers are not thought through, say Stephen Cirell and John Bennett
It is with some poignancy that we write the final Point of Law column for Public Finance. We have contributed monthly for the past eight years, commenting on legal issues as they have developed. In this final article we step back from the detail and take an overview as to how effective the law has been in delivering the government's reforms.
When the present government took power in 1997, we commented that the public sector legal framework needed strengthening to support the weight of the proposals for reform of the public services. Plenty of law has ensued, but has it had the desired effect? A review of some of the elements paints an interesting picture.
The first legal element was Best Value, and this is still with us today. The Local Government Act 1999 paved the way for the repeal of Compulsory Competitive Tendering and the implementation of a new duty to secure the continuous improvement of local government functions.
This can be seen as an important foundation, which has helped the introduction of numerous subsequent policy and legislative areas, such as Comprehensive Performance Assessments. But a case can certainly be made that Best Value did not achieve its intended goal. A long-term evaluation by Cardiff University in 2006 found that a range of other initiatives (for example,
e-government and the CPA) were more significant drivers of improvement. In certain cases, the costs of conformity (for example, inspections) outweighed the benefits and the government finally removed much of the machinery of Best Value (at least in England) with the Local Government and Public Involvement in Health Act 2007.
The CPA was also an inspection-based regime, superimposed above the Best Value legal provisions. Together, Best Value and the CPA were a potent force, with most councils accepting that they have driven service improvement. Legislatively, though, this was not such a success story, with local government lawyers doubting that the government actually had the power to introduce the CPA. A challenge by judicial review was mounted, but any doubts were subsequently removed by the Local Government Act 2003.
The dearth of powers available to councils to act, coupled with legal uncertainty, that had dogged those intent on innovation, was also on the government's 'to do' list. This difficulty with legal powers and their interpretation was a real issue and threatened to stall the progress that the government sought. So it legislated to grant a general power – of community initiative or wellbeing – for councils to use as the primary legal authority for many of their actions.
The Local Government Act 2000 could not have been drafted more widely, nor could the guidance issued in support have been more positive. Yet the tonic has not done the trick. The government remains bemused as to why local authorities have not used their wellbeing powers more. Recently, the London Authorities' Mutual Limited case has cast doubt on its credentials, and once again we appear to have descended into damaging legal uncertainty.
The financial side of local government has always proved challenging in the legal context. Grants, council tax, and charging and trading all have legal implications. But the first area tackled was borrowing powers. Again, this had a rich – and troubled – history via the capital finance regime, surely one of the most opaque and complicated systems in history. The government's plan was to replace this with the prudential borrowing regime, whereby the capital investment plans of an authority are 'affordable, prudent and sustainable' and based on what each council can sensibly determine. Local government minister John Healey has criticised councils on more than one occasion for not using these powers extensively. He recounts that many authorities have never used them since their inception in 2003.
Aside from grants and council tax, the other main area of revenue for local government is charging and trading. The government's change in policy here (ie, from being against these activities to being in support) cruelly exposed the legal uncertainty on powers, which was preventing much action in this area. The well-being powers in the Local Government Act 2000 had originally been intended to assist but proved insufficient to remedy this defect. Some commentators argued (erroneously, in our view) that the wellbeing power might have given councils the legal authority to undertake an activity but could not also bestow the power to charge for it. The government responded with the Local Government Act 2003, giving new charging powers for discretionary services under section 93 and to trade commercially under section 95.
Again, this was well intended – but again it did not have the requisite effect. Healey has referred to this too, pointing out that authorities might crave new powers and finance but most have not made use of either the charging or trading powers given in 2003. Local Area Agreements are now the main instrument of public sector stewardship in an area. These trod a different legal path, being introduced as a policy, with legislation to follow.
The notion of the LAA is hard to disagree with. However, the landscape of local government is now so complex that it is inevitable that issues of legality will arise in relation to every area. LAAs were preceded by Local Strategic Partnerships, again introduced via governmental policy.
While laudable in purpose, they have no legal standing and can result in the establishment of multi-faceted group structures, where each organisation in the group is an unincorporated association with no legal powers to act, such as entering contracts. This necessitated remedial action via the Local Government and Public Involvement in Health Act 2007, which put LAAs on a statutory footing for the first time.
The best example of providing a legal solution after the event must surely be in relation to the last local government reorganisation. The government embarked on its most recent reorganisation via the white paper Strong and prosperous communities. It seems to have slipped ministers' minds that the last time local government was reorganised was in 1992 and legislation was put in place first.
That legislation was considered out of date and unusable. Notwithstanding the fact that the government had no legal authority to do it, it embarked on the reorganisation and was challenged by a number of authorities. Power was subsequently given in the Local Government and Public Involvement in Health Act 2007. But this was not before ministers' credibility had been tested by judicial review proceedings brought by Shrewsbury and Atcham Borough Council and others.
The government won that case, in what can only be described as wholly unsatisfactory circumstances, but did not escape with its reputation untarnished.
The issue raised by the reorganisation case was one of timing, ie, at what stage does the government choose the legislative route? In days past, the usual path was a green paper, a white paper (involving consultation) followed by a Bill and subsequently an Act of Parliament. All of this preceded any action.
The more modern approach has been to legislate in parallel with the development of policy; still worse, in many circumstances, not to bring forward legislation until problems are presented for which a 'fix' is needed. In our view, this is not the best way to introduce new legal provisions.
All in all, it can be seen that the law has had a troubled past in seeking to support the reform programme. But are there more effective ways to force the public sector to modernise?
One obvious way to introduce change is to throw money at it. There are many examples of where a financial inducement has helped the policy along. One is the Private Finance Initiative scheme, where the 'credits' system ensured that many authorities who might not otherwise have gone down this route did so. But such avenues can last only so long, and the current economic climate demonstrates its limitations.
Government edict could be another way to introduce change. This is largely how the efficiency agenda has been pursued, via the Gershon initiative. This is not founded on any specific legal principles or legislation (in fact, it is probably Best Value powers that support it) but has been successful in encouraging authorities to become more efficient.
Overall, it needs to be recognised that the law is a fairly crude instrument to force change, and tends to create (at least initially) an attitude of reluctant compliance. It appears that after a process of trial and error the government has come round to the view that it can trust the public sector; that it can never fully control everything; and therefore influence is a better way forward. Influence is achieved by a combination of all these methods and by greater involvement and
co-operation across the public sector. The LAA arrangements are an example of that approach.
If the Conservative Party were to be elected at the next general election, then it would be in a curiously similar position to Labour in 1997. As Peter Riddell noted in PF last week, it would be 'a largely inexperienced team, after a long period in opposition, with a lack of knowledge of Whitehall'. Careful thought will therefore be necessary in determining how to use the law to deliver new policies.
Let us hope that a light touch will be used, whoever wins the next election, or will we be faced with another decade of trial and error?
Stephen Cirell is head of local government and John Bennett is a consultant solicitor with Eversheds
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