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The 2020 Guidance on Statutory intervention and Localism

Paul Feild examines recent government guidance on statutory intervention into local authorities, and considers what councils should do to avoid it coming to pass.

As local authorities face increasing COVID-19 financial pressures, there is increasing concern that their budgets are inadequate to meet the demands. There are open discussions on the resort to the section 114 Report / Notice under the Local Government Finance Act 1988, and that will have consequences in itself, not least it can lead to intervention by Ministry of Housing, Communities and Local Government (MHCLG). From 2010 four local authorities (Doncaster MBC, LB of Tower Hamlets, Rotherham MBC and NCC) have had statutory intervention.

Not surprising then that in May 2020 the MHCLG published an important guide on how it would manage Statutory intervention.  It is called Statutory Intervention and Inspection - A guide for local authorities (the ‘Guidance’).

Readers may recall I considered statutory intervention in an earlier article (Local Government Lawyer - Localism – Best Value Inspections and Northamptonshire County Council Friday, 06 April 2018). It examined the lessons to be learnt from the Peer Review and the March 2018 Best Value Inspection under Part 1 the Local Government Act 1999 (1999 Act) as amended by the Local Audit and Accountability Act 2014 (2014 Act) of Northamptonshire County Council (NCC) carried out by Max Caller CBE (Caller, 2018). He was instructed to take account of the governance functions that relate to functions exercised under section 151 of the Local Government Act 1972. It was the first Best Value Inspection directed primarily at finance [1]. For those of us who work with local government finance, I do recommend reading the papers on NCC, because the Guidance does encapsulate the methodology used by the MHCLG on NCC [i].

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The Guidance advises there are powers for the Secretary of State to intervene in a local authority located in the Local Government Act 1999 (as amended). They are founded on the principle that the authority is failing to deliver best value and continuing improvement. The Guidance makes clear it is a last resort power and the preferred starting point is that problems relating to the effective administration of best value are to be swiftly resolved at local level. Nevertheless if significant failings come to light through inspections as in the case of Rotherham’s political leadership for example then consideration will come into play as to how well the authority can correct things for itself or is it a signifier of an overall governance failure.

Helpfully within the Guidance we find a three-page flow chart setting out the evidence and decision-making process [ii].

The Guidance then qualifies that the chart is based on what has happened so far – so do not rely on it.

Indeed the key theme of the Guidance is the setting down in a descriptive form the process that has already been operating in practice and can be readily seen if for example you follow the Tower Hamlets intervention as a case study. Guidance Paragraph 2.2.2 sets out the key points from which I quote below:       

Evidence Base

Existing evidence for concern about an authority can be triggered from external sources (such as the authority’s external auditors, a section 114 report from the council’s Section 151 Officer or a section 5 Local Government and Housing Act 1989 report from the council’s Monitoring Officer, or substantiated concerns raised by local MPs) or MHCLG’s own risk-based work.

Appointment of an Inspector

Where there are sufficient concerns, the Secretary of State can use his or her powers under section 10 of the Local Government Act 1999 to appoint an inspector to carry out an independent inspection of the authority’s compliance with its Best Value duty.

Secretary of State’s Review of Inspectors Report

The Secretary of State will then consider the findings and evidence set out in the inspector’s report, in order to decide what the next steps should be. Because a statutory intervention is such a significant step – directing democratically elected councillors and, possibly, taking over some, or even all, of their powers – the evidential bar is high for the decision to intervene.

Secretary of State’s ‘Minded to’ Letter

If, based on the evidence, the Secretary of State is satisfied that the authority is failing to comply with the best value duty, officials will issue a “minded to” letter to the authority setting out proposals for an intervention. Although this often means the appointment of Commissioners, it is important to stress that the Secretary of State’s powers also make provision for alternative actions such as directing the council to carry out certain actions (such as preparing and implementing an improvement plan or making certain appointments).

The letter will set out the reasons underlying the proposals it contains and, where the proposals involve the intention to appoint Commissioners, the likely extent of their powers.

Consultation Period

The authority, and other interested parties, will have the opportunity to make representations on the Secretary of State’s proposals (generally 10 working days).

Secretary of State’s Decision

If, after considering any representations received and all the relevant available evidence, the Secretary of State still considers that a statutory intervention is necessary, he or she will make Directions as set out in the minded to letter (subject to any amendments arising from representations received).

Where appropriate, the Secretary of State will also appoint Commissioners. Directions will apply from midnight on the day on which they are published. Therefore, MHCLG will seek to liaise informally with the authority affected and, where necessary, Commissioners to avoid, for instance, statutory meetings taking place on the day at which decisions could be taken which would be negated by Directions.

The authority will be informed of the Secretary of State’s decision by means of a letter from a senior MHCLG policy official to the Chief Executive which will also contain the final Directions and associated Explanatory Memorandum.

Intervention Period

During the intervention, regular reports on progress to the Secretary of State (quarterly in previous interventions) will be expected. Where Commissioners are involved, they will take on the reporting role. Where this is not the case, reports may be required from the council. There may also be some consideration of changes to the original Directions, either to extend the powers or duration or to hand back functions to the authority.

When sufficient improvement has been made and the intervention comes to an end, the Secretary of State will consider evidence from the Commissioners, where appropriate, and any other relevant sources (such as an LGA Peer Challenge) before handing functions back to the authority.

If appropriate, the Secretary of State will withdraw Commissioners. But require the authority to report on progress against an improvement plan for a fixed period before completely ending the intervention. All correspondence relevant to the intervention between the authority and MHCLG; Commissioners reports and the Secretary of State’s responses; and Directions and Explanatory Memoranda will be published on the government website. Decisions of the Secretary of State will also be communicated to the Houses of Parliament by means of written and oral statements.

The Guidance makes the point that it would be preferable if the authority seeks help to sort its problems out rather than wait until there is intervention, such as sector led support through the LGA’s sector led improvement programme and focussed support from MHCLG. If such an option is considered there will need to be evidence backed decision making which provides assurance to the MHCLG that the authority has a sound grip on the situation and a viable plan for recovery.

As I mentioned in an earlier Local Government Lawyer paper it is far better to ask neighbouring authorities for help when in difficulty than to operate in denial. The reputational damage of a best value intervention and the not inconsiderable cost, which could be over a million pounds [iii], is far worse than demonstrating leadership through asking for some assistance.

As can be seen essentially the statutory intervention is in two stages, that is to say determining that inspection should take place and then based on what is found following the inspection whether the Secretary of State should take over via Commissioners the authority’s functions. That is why it is critical that inspectors are given every assistance in their labours otherwise there will be a further tipping point towards a decision to appoint Commissioners or expand the Commissioner intervention [iv].

Section 114 Notices

One particular issue of the discussions around NCC was the view that a section 114 Local Government Finance Act 1988 notice should have been served far earlier. Essentially the Section 114 Notice is a drastic measure akin to a form of the Council body going into shock with all but vitals being cut.

Section 114 (3): “The chief finance officer of a relevant authority shall make a report under this section if it appears to him that the expenditure of the authority incurred (including expenditure it proposes to incur) in a financial year is likely to exceed the resources (including sums borrowed) available to it to meet that expenditure.”

When advising on S.114, please read the Local Government Finance 1988 Act carefully as the form of report depends upon whether the Council is operating an Executive or not. As can be seen from the Guidance there is a bit of a Catch 22. If the authority CFO puts off the S.114 Report / Notice then it might all be sorted out with a robust recovery plan, but if they take the S.114 route, then it is a trigger for getting the MHCLG to intervene. On the other hand, the beleaguered CFO is open to criticism if they don’t go for S.114 earlier. So, it is not surprising people are holding off on S.114 [v].

CIPFA’s Chief Executive Rob Whiteman in the Local Government Finance Officers Room 151 [vi] [vii], explains that that action should be taken before service of the notice and that measures have been agreed between CIPFA and MHCLG to the effect of

  • At the earliest possible stage, a CFO should make informal confidential contact with the Ministry of Housing, Communities and Local Government (MHCLG) to advise of financial concerns and a possible forthcoming S.114 requirement.
  • The CFO should communicate the potential unbalanced budget position due to COVID-19 to MHCLG at the same time as providing a potential S.114 scenario report to the council executive (cabinet) and the external auditor.

Conclusion

So, what would the lawyers say if this comes your way. The first step is to get the best you can of what is the reality of the situation. If the trigger is an external report, then at least there is a fixed point to work from. This is likely to be the most serious as the local authority may have little control over its publishing which could as in Rotherham make the national news headlines. If on the other hand it is an accumulation of weak leadership coming to a head on change of regime of officers or politicians, then getting a peer review is a good foundation. As ever it is all about getting the facts and evidence together, professional analysis, involving the political element of the council giving thorough consideration of what needs to be done and an agreed robust plan. One thing that does need to be clear is when these problems emerge, they are going to cost, and the price will be greater with every day of inaction.

So, what has this got to do with Localism? Well, the Government's message is ‘still sort it out at the local end, but if you are in trouble then you need to get help from your peers and let us know and if you do not and a S.114 follows then you should realise that S.114s have wide reaching repercussions’. Sounds reasonable.

I would advise that the Guidance confirms there are the real-world triggers. Some areas of local authority functions are going to be more closely watched than others. When presenting evidence to the Parliamentary Select Committee [viii] which considered statutory intervention the DHCLG made the point in their evidence that while the intervention in Tower Hamlets was related to best value the intervention in Rotherham was a joint intervention with the Department of Education too. Clearly something had gone seriously wrong regarding child sexual exploitation and Rotherham’s approach and response did not instil confidence.

Furthermore, its organisational culture including its whistleblowing process did not function robustly. It is fair to conclude that inadequate child (and adult) safeguarding services continue to be potential hair trigger points.

There is inevitably in any large public organisation a tendency to prize reputational management as being a key objective. However, the Minister told the Select Committee that in taking a view the DHCLG would note information from contacts with local authorities, relevant government departments, regulatory organisations, council minutes and the local press. A sound whistle-blowing process is vital to break a sense of unreality that seems to pervade the more dysfunctional authorities, indeed it will reduce the likelihood of people going to the press. It is important to stress that time must be taken to rule out or confirm whether negative stories are based on fact. Further, that effective action is being taken to ensure that the right things are being done straight away with the resources to do so and properly monitored with an effective action plan to ensure no repetition.

One clear signifier that was raised was the danger of the statutory posts being held by interims. The former Secretary of State made the point when discussing Tower Hamlets that such posts should be held by permanent staff. A further warning sign is deterioration of member and member relations and member and officer relations. The Committee heard that if serving councillors were using Freedom of Information requests to access information it was a warning sign. Further, complaints by members against officers and vice versa are not a sign of good leadership, particularly if it leads to termination agreements [ix].

Summary

The Guidance is sensible advice. Beware of the route to making a S.114 Report / Notice. It is a clear trigger. Follow CIPFA’s guidance to pre-S.114 action. Ask for help from your neighbouring boroughs or ask the LGA to help.  If this seems politically unpalatable there are competent professional advisors who can put together a recovery plan. In summary take active steps to obviate the need for a S.114 Report / Notice but if there is no alternative then it too must be done.

Having said all the above I do wonder whether all the poor folk who should have looked at the Guidance at a timely point will not do so until it is too late and see the ‘flow chart of doom’ [x].

Dr Paul Feild is a Senior Solicitor working in the Barking & Dagenham Legal Practice Governance Team. He has been a deputy monitoring officer on and off for various authorities for twenty years. He researches and writes on governance issues and can be contacted This email address is being protected from spambots. You need JavaScript enabled to view it..

[i] The Secretary of State the Rt Hon Sajid Javid made a statement to Parliament and said he accepted the Inspection Report. He observed that the failure was not due to lack of funding or because NCC was being treated unfairly, but that NCC had failed to manage its budget and that the complex structure of NCC’s finance support meant oversight was difficult and accountability blurred. Blue on blue…

[ii] Having said that, while it is nice to have, I do not imagine many Chief Finance Officers printing it out and pining it to a softboard or the more IT savvy scrolling it to and fro

[iii] EG PWC’s costs in the Tower Hamlets Intervention

[iv] PWC were very critical about Tower Hamlets officers lack of co-operation which ran up costs

[v] One tactic might be the Spartacus approach of a cadre of CFO’s all agreeing to issue the S.114 at the same time…

[vi] A play on Eric Blair’s 1984’s Room 101 and the S.151 Chief Finance Officer role set out in Local Government Act 1972 – but you all knew that of course…

[vii] https://www.room151.co.uk/funding/section-114-covid-19-has-driven-some-councils-to-the-brink-but-new-guidance-may-help/

[viii] https://publications.parliament.uk/pa/cm201617/cmselect/cmcomloc/42/42.pdf?utm_source=42&amp%3Butm_medium=module&amp%3Butm_campaign=modulereports

[ix] Do read the article on CSPL and Bullying, Local Government Lawyer, 3 Jan 2020

[x] Allusion to the Barnet Graph of Doom

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