A guide on tackling the savings challenge in 2024 – The Director’s Cut

Paul Feild looks at the options open to local authorities when making savings and the legal hurdles they must overcome.

Introduction

Any follower of current local government strategy and policy will know there is one issue above all others demanding attention and that is the question – ‘just how can a local authority lawfully reduce expenditure to ensure a balanced budget, a legal requirement under the Local Government Finance Act 1992?’

The Government summarises the budget process[i] as:

Local authorities in England and Wales are required to set a balanced budget for each financial year, following a specific process. They must calculate “the expenditure which the authority estimates it will incur in the year in performing its functions”; and then they must subtract “the sums which it estimates will be payable for the year into its general fund”, not including business rates, revenue support grant or other grant funding. This calculation leads to a local authority’s ‘budget requirement’ for the financial year in question. The local authority must then subtract the amount that they expect to receive in Government grants and business rates. The amount remaining is the total amount that they must raise in council tax.

All this must be done by 11 March 2024.

But there’s not enough money and the temporary ability to balance budgets over three years in Covid 19 times has gone. Reserves are down and the war in the Ukraine has put up the cost of essential foodstuffs materials and energy. A change in national Government in 2024 is not going to save the day.

For the local government lawyer, the pressing question is more focused on ‘please advise the Chief Officers’ Management team on how they can balance the budget and not in the process get successfully challenged in the courts?’

This is a difficult if not impossible task. Who knows what the challenge(s) will look like or on what issue. However, the simple truth is the ‘Barnet Graph of Doom’[ii] predicted the ‘unbalanceable’ budget more than a decade ago. The extra spending from Covid 19 funding bought some of us respite, but the pressure is back. Simply put, for even a well-run council the costs of children and adult services are placing impossible burdens on the local authority budget[iii] let alone other costs and for 2024-2025 for many local authorities their reserves are depleted or gone. Realistically, the only strategic solution is to scrap the reliance on the commissioning model of paying for profit businesses for residential care and establish collaborative inter-authority run services. This merits a paper itself.

Furthermore, insofar as attempts to reduce costs means anything, the reality is that cuts will be required to get a balanced budget, those cuts being to both discretionary services and those that are statutorily obliged to be provided such as for example, duties under the Children Act 1989. In theory all can be adjusted, delivered in a different way or efficiencies made lawfully if the proper process is adopted. Going about it the right way is sacrosanct.

One way to look at making savings is to adopt a thought experiment of an assumption that the local authority’s financial situation has already reached the firm likelihood of the Chief Finance Officer issuing a report under section 114(3) Local Government Finance Act 1988 (section 114 for short). Essentially the process is like the human body going into shock where blood supply is cut off to all but the vital organs. In such a section 114 scenario, a local authority will seek to cut any service which is supplied by a power or is discretionary so as to minimise the provision of services to the bare minimum affordable and required by law with some capacity for contingency. But we also know that shock will lead very swiftly to fatality unless urgent resuscitation intervention is taken.

I know across the land local government lawyers are being asked: ‘ok then what are the statutory services which remain post a section 114(3) report? List ‘em’. Nice idea, but there are so many, it’s a pointless exercise. The more pertinent questions to ask are: Where is our money really going? Are we getting value for money and can we cut any of it down? I recently wrote a commentary on the draft Best Value Guidance in September 2023 Local Government Lawyer Governance edition[iv]. The Guidance is worth a read.

The key point about making cost cuts is that it is certain that people, particularly the elderly, frail and vulnerable will be negatively affected. The legal position is we need to know what effect the changes will have on them and that they must be consulted. Just because there may be a statutory duty does not mean there cannot be decisions in how the service is delivered and the range of the level of service provision.

In other instances, where the local authority provides services in pursuit of a statutory power, rather than a duty, decisions about them must still be taken in accordance with the decision-making requirements of administrative law. Decisions must be reasonable, fair and with proper process.

Reasonableness means a local authority must act reasonably which means considering all relevant considerations and disregarding irrelevant matters.

The keystone aspect to making reasonable decisions is a robust consultation procedure.

While there is some guidance published which must be followed such as that by the Cabinet Office, a robust consultation process must also take account of recent cases before the courts and there will be specific requirements to consult set out in legislation, more of in a moment. Insofar as the local authority as a public body is concerned there are two specific considerations firstly the services’ users and stakeholders and secondly the staff affected. A first-class article on consultation was published by 3PB in Local Government Lawyer (8 December 2023[v]). Do read it.

1. Consultation

Best Value – Duty to Consult

The key point to note about local authority consultation is that it is a requirement of the statutory duty under section 3 Local Government Act 1999 (LGA 1999) for best value authorities such local authorities. It must consult before making changes. So not consulting when bringing about change in services is going to be unlawful, period.

Section 3 describes the general duty of best value. The duty is not described exhaustively but requires best value authorities (i.e., councils etc. see section 1.(1) LGA 1999) to make arrangements to secure continuous improvements in the exercise of their functions, judged against named criteria and with regard to a combination of economy, efficiency and effectiveness (section 3.(1) LGA 1999).

For the purposes of fulfilling the general duty, section 3(2) also imposes upon best value authorities a mandatory duty to consult with representative groups of people falling within specified categories, and in doing so, to have regard to any relevant guidance issued by the Secretary of State.

Haringey Case

There is not that much in the way of published guidance on consultation. The revised August 2023 Draft Best Value Guidance only mentions consultation four times and that more in passing. So, our best source as to what needs to be done is to be found in reported decisions of the courts.  A Supreme Court case in late 2014 Haringey London Borough Council[1] and its consultation process has essentially set the last word on local authorities carrying out consultation. 

The facts were that the Coalition Government with the Welfare Reform Act 2012 and Local Government Finance Act 2012 brought about changes to the Local Government Finance Act 1992 (1992 Act). It abolished Council Tax Benefit (CTB) from April 2013 and in its place council tax support took the form of a Council Tax Support Scheme (CTSS). Authorities were expected to devise their own scheme or be required to use the Government’s default scheme. The draw-back of that was for many authorities the Government default arrangements resulted in a net cost to the Councils. As a result, many local authorities across the land devised their own schemes.

The 1992 Act in schedule 1A requires the authorities to consult on their proposals with precepting authorities (e.g., the GLA) and “such other persons as it considers are likely to have an interest in the operation of the scheme”.

Two residents challenged Haringey Council’s own scheme. They lost in both the High Court and in the Court of Appeal so took their appeal to the Supreme Court. They won. The Judges rejected Haringey’s approach to consultation. They heard that the Council had hand delivered 3,600 letters telling the people most likely to be affected by the changes why the Council was going to make the changes and seeking views.

The Judges said that was the wrong approach. The key issue is that the changes in policy must be made in the light of being informed by consultation. Consulting about a proposal does inevitably involve inviting and considering views about possible alternatives.

The leading case on outsourcing, Nash v Barnet LBC [2013] (Court of Appeal) found the time for challenging a Council’s decision to outsource had passed. So, there is not an open-ended right to challenge.

2. Future change

There continues to be an obligation to consult if the form of the service itself changes, for example eligibility or charges are brought in. This is in any event more likely to lead to challenges as individuals’’ interests may be affected.

3. Equalities and human rights considerations

Challenges to council change initiatives are likely to succeed if the council cannot show it has had due regard to equalities and human rights considerations.

Equalities

The Equality Act 2010 outlaws certain discrimination against persons with the following protected characteristics: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation.

The Equality Act 2010 requires the local authority to observe the public sector equality duty in the exercise of its functions, having due regard to the need to:

• Eliminate unlawful discrimination, harassment and victimisation and other conduct prohibited by the Equality Act.
• Advance equality of opportunity between people who share a protected characteristic and those who do not.
• Foster good relations between people who share a protected characteristic and those who do not.

Human Rights Considerations

The Equalities and Human Rights Commission published Guidance “Making Fair Financial Decisions Guidance for decision-makers” in 2015. It comments:

“The public sector equality duty (the equality duty) does not prevent you from making difficult decisions such as reorganisations and relocations, redundancies, and service reductions, nor does it stop you from making decisions which may affect one group more than another group.

"The equality duty enables you to demonstrate that you are making financial decisions in a fair, transparent and accountable way, considering the needs and the rights of different members of your community. This is achieved through assessing the impact that changes to policies, procedures and practices could have on people with different protected characteristics.“

It is important that local authorities can demonstrate they had ‘due regard to’ the equality duty in their decision-making. This means carrying out an Equalities Impact Assessment (EIA) to establish how those with protected characteristics will be affected by proposed changes to services. This must be done early while the process of change is at a formative stage. So, finalising a scheme, then testing it for EIA would be procedurally wrong. It must be done before the final option is chosen.

Furthermore, the weight applied to the EIA should be proportional to the proposal. So, a welfare reduction merits greater scrutiny than for example staffing facilities such as cutting a canteen food discount for example.

4. What this now means for consultation

In the Haringey case the local authority took the measure of hand delivering some 3,600 letters. They still lost because they had not given clear information to the consultees. It is doubtful that the sole use of a local authority’s website would suffice. For example, metropolitan local authorities are located in some of the more deprived areas in the country. Many people do not have access to the internet, lots of people do not have English as their preferred language of communication and even if they do are they really going to be spending their free time looking at municipal webpages[vi]?

So, if a local authority is minded to changing services, there will need to be consultation informed by a Communications Plan and it needs to be targeted to ensure that there is a demonstrably reasonable attempt to contact all those who may be affected. In the case of housing the preferred approach as a starting point is to follow the course set by Part IV of the Housing Act 1985 that before changes are made to terms and conditions, the Local Housing Authority should write to every tenant and leaseholder giving them notice of proposals.

Who to consult?

The Courts have made a restatement as to who should be consulted and on what basis for consultation. This is of general application for all consultations.

Common sense says that any voluntary groups and members of local strategic partnership are engaged soon as soon as possible. In particular, these organisations may be astute political operators and will tend to have strong connections with the elected membership and they will know who to lobby. Furthermore, many organisations rely on local authorities grant funding which may be geared to match funding. This means a council cut in funding can have a devastating effect in that for the organisation it may lose perhaps twice over the value of the cut, so there can be a lot at stake.

The key message is that consultations must be carried out fairly. It can be summarised it as Who, How, When, What and an Evidence Based Analysis:

i. Who do you consult? -  In broad terms it is to let those who have a potential interest in the subject, in terms of who must be consulted the demands of fairness are expected to be somewhat higher when an authority contemplates depriving someone of an existing benefit or advantage than when the claimant is a bare applicant for a future benefit.

ii. How? - So, if a person is likely to lose something or be worse off, then they should be specifically identified and consulted. In Haringey all those affected were written to and the letters were hand delivered. This is sound practice. So, if you know that an individual or household will be adversely affected an attempt must be made to contact them by preferably personal calling and hand delivered letters or by phone call and this be re-enforced by press releases and poster media. Information provided on X (formerly known as Twitter) or on council web pages are not good enough on their own.

iii. When do you consult? -  In terms of when should consultation take place:

• Firstly, the position is that consultation must be at a time when proposals are still at a formative stage.
• Secondly, that consultation must give sufficient reasons for any proposal to permit a person to in the Court’s words “give an intelligent consideration and response”.
• Thirdly, that adequate time must be given for consideration and response, and
• Finally, that the product of consultation must be conscientiously taken into account in finalising any statutory required proposals.

iv. On what basis? - The purpose of a statutory duty to consult is to ensure public participation in the local authority’s decision-making process.  For the consultation to achieve that objective, it must fulfil certain minimum requirements. Meaningful public participation in the decision-making process, in a context with which the public cannot be expected to be familiar, requires that the consultees should be provided not only with information about proposals such as a draft scheme or policy, but also with an outline of the realistic alternatives and an indication of the main reasons for the authority’s adoption of its preferred option.

The Courts say that there is an obligation to let consultees know, “What the proposal is and exactly why it is under positive consideration” and telling them enough (which may be a good deal) to enable them to make an intelligent response”.

v. An evidence based analysis – Consultation will only be of use if the data collected from the consultation is properly handled and objectively managed. 

This means there must be a sound methodology for data collection, processing and analysis. Responses must be clearly presented and not cherry picked to support a preferred approach.  This means findings of a consultation are backed by evidence and where assumptions are made reasons for doing so are identified such as for example statistics supplied by other accredited organisations such as Government sources.

5. Consultation plans

The key message is if there is to be change, the quantity and quality of information may need to be re-examined. This means that any strategy or policy for these services which is likely to have an impact on the community needs to be founded on proper consultation. This is best done by drawing up a Consultation Plan. It is clear that while the Courts are not expecting a full-scale committee report to be sent to the public at large, it will be expected that effective consultation plans will need to have anyone likely to be affected specifically identified and targeted for information in the consultation process and a strategy on how they can be enabled to take part.

Steering group

Steering groups are a useful tool for ensuring the consultation is going to be effective. The greater the involvement of the community the better the outcome of the consultation in terms of evidence and data quality will be. If possible, links should be forged with community representatives, bodies and established forums to ensure they are as it were on board for what you are trying to do even if they may not agree with it. It is a good idea for a legal professional to be engaged so as to ensure the right messages are sent at the right time.

6. Checklist

There is no substitute to specific advice on a specific consultation as it is possible that the consultation will have to follow prescribed guidelines. A suggested starter checklist is attached at appended to this document.

7. Other considerations

Staff Affected

If the service changes would lead to loss of jobs, then the local authority’s redundancy and redeployment procedure would apply. If proposals would result in more than 20 but fewer than 100 redundancies in any 90-day period, there would be a requirement to consult for a period of 30 days with the Council’s trade unions under Section 188 Trade Union and Labour Relations (Consolidation) Act 1992. The advice on staffing will require further analysis as there will be collective agreements and local arrangements to be considered.

Contracts and agreements

A local authority as well as a public body is also a corporate body. It should review all contracts and agreements it has with other service providers to determine if there are termination and exit clauses. For example, it may be punitively expensive to terminate a contract mid-term alternatively there may be a prospect for an organised trimming down or cheaper alternative.

Furthermore, agreements which have not yet been entered into may be open to variations or discarded for alternative lower cost options. Such arrangements may be subject to a different regulatory and procurement regime post-Brexit and the Subsides Control Act 2022. It must be borne in mind that post-Covid 19 and taking into account the effect of war in Ukraine, it is unlikely that any new contracts will deliver any savings, the most likely outcome is considerable extra costs for little gain. A better strategy is likely to be the re-negotiation of existing contracts and extensions.

A word needs to be said about value engineering. The Grenfell Tower Public Enquiry transcripts reveal that too much consideration was given to cost reduction without a proper appreciation of the risk factor of the change in specification of materials which superficially appeared to be suitable but were in fact of high risk and potentially lethal in the event of being stress tested by an extreme event such as for example a fire. No substitution should ever be contemplated without proper due diligence as to risk factors and confirmation as to suitability assurance by professionals able to certify the use.                    

Land and local authority occupancy

With the local authority’s property interests likely to be substantial termination of leases and licences may reduce costs and a review of the authority’s property portfolio to merge users to sites with capacity may lead to significant savings.

The consolidation of sites and options such as home working may liberate sites for disposal which could provide significant capital releases.

Joint Procurement

There may be opportunities to re-engineer early-stage projects by utilising cost management consultants to advise on savings in design and delivering less ambitious or exemplar outcomes. This consideration should include the opportunities of ‘piggybacking’ with other authorities facing the same service demand and costs challenges, where the economy of scale becomes a possibility. For example, with Waste Collection Authority local authorities all will be subject to food waste collection duties (potentially in 2026 – who knows!). A joint procurement of plant and receptacles is likely to deliver savings.

Culture, savings and risk management

There is a temptation to reduce deficit by taking greater risks for the opportunity of greater return. However, the recent history of councils such as Thurrock is that it exposed itself to ruinous risk of financial speculation in investments funded by borrowing which went bad. The same happened in the cases of Croydon and Woking Councils. Their problem seems to be one organisational culture when doubts about courses of action were ignored or suppressed.

Grant Thornton have just published an informative paper: Preventing failure in Local Government[vii]. Its appendix has a guide to the statutory officers. Take out the line spacing and there is not a lot there. It is a good reminder of how little definition there is to the governance dimension.

I doubt that ‘dotted lines’ and ‘golden triangles’ and ‘access to the top table’ are the solutions[viii] when they come up against raw politics[ix]. This is because the economics of council projects can mean there is significant political capital and reputations at stake. Nevertheless, pulling the plug on unviable projects is far better than ploughing funds into enterprises which will never break even let along give a return on capital (the economics of the ‘fallacy of sunk costs’).

This does not mean that savings which would lead to the risk of catastrophic consequences should be entertained particularly when lives and health are at stake. The classic example being Grenfell Tower, where cost shaving led to dangerous cladding being installed.

8. Conclusion

This is a long paper and it is no substitute for getting considered subject specific advice. Going forward, the highest Court in the land has set the standard that where there is a requirement for consultation, local authorities will be expected to:

• contact all those who will be or are likely to be affected.
• consult them before irreversible decisions are made not only with information about proposals such as a draft scheme or policy, but also with an outline of the realistic alternatives, and an indication of the main reasons for the authority’s adoption of its preferred option.
• give them adequate time to respond, for example six weeks to three months would be reasonable in most circumstances. 
• following the response from the consultees, active consideration must be given to the response.

Furthermore, any change needs to be tested against the statutory responsibility, the equalities impact and the risks the action could bring.

It’s a wrap.

Dr Paul Feild is a Standards & Governance Solicitor working in a local authority’s legal services. His 2015 Doctor of Business Administration Thesis was ‘How does Localism for Standards Work in Practice? The Practitioner’s View of Local Standards Post Localism Act 2011’.

The editorial content and opinion are his own. He researches and writes on finance and governance issues and can be contacted This email address is being protected from spambots. You need JavaScript enabled to view it..

APPENDIX A

Model Starter Consultation Checklist

APPENDIX B

Cabinet Office Consultation Principles 2018[x]

A. Consultations should be clear and concise

Use plain English and avoid acronyms. Be clear what questions you are asking and limit the number of questions to those that are necessary. Make them easy to understand and easy to answer. Avoid lengthy documents when possible and consider merging those on related topics.

B. Consultations should have a purpose

Do not consult for the sake of it. Ask departmental lawyers whether you have a legal duty to consult. Take consultation responses into account when taking policy forward. Consult about policies or implementation plans when the development of the policies or plans is at a formative stage. Do not ask questions about issues on which you already have a final view.

C. Consultations should be informative

Give enough information to ensure that those consulted understand the issues and can give informed responses. Include validated impact assessments of the costs and benefits of the options being considered when possible; this might be required where proposals have an impact on business or the voluntary sector.

D. Consultations are only part of a process of engagement

Consider whether informal iterative consultation is appropriate, using new digital tools and open, collaborative approaches. Consultation is not just about formal documents and responses. It is an on-going process.

E. Consultations should last for a proportionate amount of time

Judge the length of the consultation on the basis of legal advice and taking into account the nature and impact of the proposal. Consulting for too long will unnecessarily delay policy development. Consulting too quickly will not give enough time for consideration and will reduce the quality of responses.

F. Consultations should be targeted

Consider the full range of people, business and voluntary bodies affected by the policy, and whether representative groups exist. Consider targeting specific groups if appropriate. Ensure they are aware of the consultation and can access it. Consider how to tailor consultation to the needs and preferences of particular groups, such as older people, younger people or people with disabilities that may not respond to traditional consultation methods.

G. Consultations should take account of the groups being consulted

Consult stakeholders in a way that suits them. Charities may need more time to respond than businesses, for example. When the consultation spans all or part of a holiday period, consider how this may affect consultation and take appropriate mitigating action, such as prior discussion with key interested parties or extension of the consultation deadline beyond the holiday period.

H. Consultations should be agreed before publication

Seek collective agreement before publishing a written consultation, particularly when consulting on new policy proposals. Consultations should be published on gov.uk.

I. Consultation should facilitate scrutiny

Publish any response on the same page on gov.uk as the original consultation, and ensure it is clear when the government has responded to the consultation. Explain the responses that have been received from consultees and how these have informed the policy. State how many responses have been received.

J. Government responses to consultations

 should be published in a timely fashion Publish responses within 12 weeks of the consultation or provide an explanation why this is not possible. Where consultation concerns a statutory instrument publish responses before or at the same time as the instrument is laid, except in very exceptional circumstances (and even then publish responses as soon as possible). Allow appropriate time between closing the consultation and implementing policy or legislation.

K. Consultation exercises should not generally be launched during local or national election periods.

If exceptional circumstances make a consultation absolutely essential (for example, for safeguarding public health), departments should seek advice from the Propriety and Ethics team in the Cabinet Office.

References

^[1] https://www.supremecourt.uk/decided-cases/docs/UKSC_2013_0116_Judgment.pdf

^[i] CBP-8520.pdf (parliament.uk) Mark Sandford HMSO Jan 2023

^[ii] https://inlogov.com/2012/05/23/barnet-graph-doom/

^[iii] Health and social care and asset management | CIPFA

^[iv] https://www.localgovernmentlawyer.co.uk/governance/314-governance-a-risk-articles/55015-how-to-use-2023-best-value-guidance-as-a-roadmap

^[v] Public sector consultations (localgovernmentlawyer.co.uk) see excellent piece by Matthew Wyard, Jim Hirschmann and Rosa Thomas of Counsel. https://www.3pb.co.uk/

^[vi] When it comes to Christmas refuse collection day (an important matter in my household) a leaflet is used by my local Council

^[vii] report-preventing-failure-in-local-government-_v08.pdf (grantthornton.co.uk)

^[viii] The Local Government and Housing Act 1989 is 35 years old. It is so out of date. There is a need for a statutory defined Corporate Governance Officer that means a proper statutory requirement on the Head of Paid Service – which legally is a glorified Chief Human Resources Officer. What is this fixation with the ‘’top table? when the reality is, if the Monitoring Officer (and how many are interims?) is not also a Chief Officer/ Corporate Director then they are just a visitor guest while the HofPS and the CFO / S.151 brief them on whatever they chose to tell the hapless Monitoring Officer. In my opinion the Head of Paid Service should have specific statutory responsibility for ensuring sound governance and that the local authority is a going concern. See Don’t shoot me, I’m only the Monitoring Officer - Croydon and the Penn Report (localgovernmentlawyer.co.uk) and Don’t shoot me, I’m only the Monitoring Officer: Part Two (localgovernmentlawyer.co.uk)

^[ix]

^[x] https://www.gov.uk/government/publications/consultation-principles-guidance