The Secretary of State commissioned the Best Value inspection while Merseyside Police have been carrying out an investigation involving a significant link to the council. This investigation has led to arrests on suspicion of fraud, bribery, corruption, misconduct in public office and witness intimidation.
After ordering the inspection Jenrick told the House of Commons on 17 December that additionally, “persuasive evidence” had been presented to him regarding Liverpool’s planning, highways, regeneration, property management functions and associated audit and governance arrangements.
In an oral statement given yesterday to the House of Commons, the Secretary of State said the Best Value inspection report produced by lead inspector Max Caller alongside assistant inspectors Vivienne Geary (a solicitor with 35 years’ experience of working in local government) and Mervyn Greer had identified “multiple apparent failures” in complying with the Best Value duty. There had been a “serious breakdown in governance” at the local authority, the minister said.
The Secretary of State told MPs that the report had “painted a deeply concerning picture of mismanagement, the breakdown of scrutiny and accountability, a dysfunctional culture putting the spending of public funds at risk and undermining the city’s economic development”.
The Best Value inspection report is wide-ranging but specifically in relation to Legal Services it recommended that the building up of the team should “include investment in senior staff, increasing oversight of outsourcing and reducing reliance on external firms for non-specialist matters”.
Caller and his team also suggested that any review and update of Liverpool’s Constitution and Standing Orders should provide clarity about the full responsibilities of the City Solicitor and Monitoring Officer role “for the benefit of both members and the public alike”.
The report said: “The Legal Service in a local authority should provide the essential corporate and operational legal advice and support for the authority’s departments and also have developed systems and processes to ensure that it is seen as the first port of call for legal support.
“The Inspection Team found dedicated, enthusiastic, and very able lawyers working within LCC. However, the internal resources for the areas under inspection were stretched leading to the outsourcing of large volumes of work and a pressurised work environment.”
The report’s findings in relation to the Legal Services team included:
- Like in many local authorities, legal services in the council were significantly cut from 2010-14. “However, over the Review Period [2015-20] their resource and shape had remained reasonably stable.” The team’s position had been changed to make them more visible and central to the authority’s activities. In 2018 the chief executive moved Legal Services and the City Solicitor/MO from the S151 line management chain to report directly to him.
- There are six teams of varying sizes within the department, each with a Principal Solicitor undertaking operational leadership. The majority of the work in scope of the inspection was completed by the Regeneration and Development Team, Regulatory Team and the Contracts and Commercial Team. The Development Team has two qualified lawyers and two skilled legal assistants to cover a substantial amount of work, in 2017 the city council made 44 disposals of property and maintained an average of 35 disposals a year over the review period. “However, Legal Services had a reputation for being ‘slow’ and struggled to keep up with the volume of work.”
- A notable exception to the stability within Legal Services was the departure of the Assistant City Solicitor in 2018 who had yet to be replaced. “Senior management roles of this nature are integral to the effective running and prominence of a service,” the report said. “While two of the Principal Solicitors have provided interim cover, the Inspection Team heard that in the absence of this position Legal Services' views were not always heard or were consciously ignored when raising valid concerns with other departments. In addition, the vacancy also placed additional stretch on the service and reduced the ability of legal services to strategically forward plan.”
- The apparent lack of capacity had had two particular consequences. Firstly, large parts of legal work was outsourced, with one officer estimating that 20-25% of the Regeneration legal work was outsourced. The Inspection Team found that while there was a central process for procuring legal work which was championed as the best method, the council’s CSO [Contract Standing Orders] allowed client teams to procure external legal support directly without involving Legal Services. “When outsourcing whether through the legal team or otherwise, officers often procured at speed and went to legal firms they had worked with before creating a small pool of preferred firms and solicitors. It led to occasions where both the council and the developer were using the same firm.”
- The Inspection Team were informed that on occasion the first time Legal Services became aware of outsourcing was when they were required sign off a DAR [Delegated Action Report] or to witness the authority’s seal. “Securing external legal advice and support is costly and it may be that addressing in house capacity issues through the appointment and critically, the development, of internal resources would be more cost effective and beneficial to LCC.”
- The Inspection Team were told and saw evidence of external advice being secured to challenge the advice of Legal Services. “Linked to this it was noted that challenging a client department’s instructions was commonly ineffective, particularly those from Regeneration.”
- The second consequence of the lack of capacity was that in 2016 it led to Regeneration creating a new solicitor post (at a higher grade than Principal Solicitor) to help speed up and smooth legal processes. The job went to a candidate from Legal Services. Although there was some agreement between Legal Services and the successful candidate about not signing off reports on behalf of Legal Services, for example, there was no professional responsibility to the Legal Service or the MO. “The success of the arrangement from the perspective of Regeneration is apparent because this approach has been repeated, and a further solicitor appointed again with line management in Regeneration. The creation of these posts moved the focus of legal support from Legal Services and diminished proper oversight of the legal advice to LCC it also reduced the visibility of the land transactions to the in-house legal team.”
- Another area of concern was that it was common practice for internal Legal Services to be presented with reports for ‘sign off’ “seemingly at the last possible moment with emphasis on the political support behind any proposal. This introduced unacceptable pressures on the internal team, impacting on the robustness of scrutiny, and increasing the reliance and trust placed (or potentially/occasionally misplaced) on the information provided by officers submitting the report.”
- At Liverpool the Monitoring Officer is also the City Solicitor but there is no specific designation of that role as the Solicitor to the Council in the constitution. “In addition, the current delegations to the City Solicitor in the Officer Delegation Scheme are limited and do not reflect the significance of the role and its responsibilities or the work and activities that this officer and their team is, in fact and necessarily, undertaking.”
In his oral statement in the House of Commons, Secretary of State Robert Jenrick told MPs that the failures identified by Caller and his team included:
- A failure of proper and due process across planning and regeneration, including worrying lack of proper record keeping. "Indeed, documentation had sometimes been created retrospectively, discarded in skips, or even destroyed."
- A lack of scrutiny and oversight across highways, "including dysfunctional management practices, no coherent business plan, and the awarding of dubious contracts".
- A failure of proper process relating to property management, including compliance with the council’s own standing orders, "leading to a continued failure to correctly value land and assets, meaning tax payers frequently lost out. When selling land, the Report states that securing Liverpool City Council’s best interests were not on the agenda."
- Poor governance arrangements for council-operated companies.
- An overall environment of intimidation, described as one in which “the only way to survive was to do what was requested without asking too many questions or applying normal professional standards.”
- The review found that there was a fundamental failure by members "to understand and appreciate the basic standards governing those in public service and – with no regular ethics or standards committee and no means of monitoring complaints effectively – there was no established way to hold those falling below those acceptable standards to account".
The Secretary of State said that “as a whole, the report is unequivocal that Liverpool City Council has failed in numerous respects to comply with its Best Value Duty”.
He added: “It concludes that the Council consistently failed to meet its statutory and managerial responsibilities and that the pervasive culture ‘appeared to be rule avoidance’.
“It further concludes that changes need to be radical, delivered at pace, and there was no confidence that the Council itself would be able to implement these to any sensible time-scale.
“There may also be further issues of which we are not yet aware, and the Report is careful not to speak to matters that might compromise the ongoing police investigation.”
The Secretary State acknowledged that the report commended the hard work and dedication of many staff working for Liverpool.
“The report is also clear that the current Chief Executive Tony Reeves and statutory officers have taken positive remedial steps – and I wish to thank Tony for his dedication and service,” he added. “Neither does it comment on the Liverpool City Region Combined Authority, on Mayor Steve Rotheram, or other councils in Merseyside.”
Jenrick said however that despite the good work undertaken by Tony Reeves, there was “a clear picture that there has been a serious breakdown of governance at the council.
“If unchecked, it will allow improper conduct to persist, further undermining public confidence, putting public services at risk and damaging the city’s ability to attract investment from reputable developers and investors for regeneration and to take full advantage of new economic opportunities, such as the recent successful application for freeport status.”
The Secretary of State said in formal terms that he was satisfied that the council was failing to comply with its best value duty.
In line with procedures laid down in the Local Government Act 1999, the minister has written to the council asking them to make representations – both on the inspectors' report and on a proposed intervention package.
This package is centred on putting in place commissioners who he will appoint to exercise certain and limited functions of the council as required, for a minimum of three years.
Jenrick said he was proposing that the council will – under the oversight of the commissioners – prepare and implement an Improvement Plan.
This would require the following provisions:
- Within 6 months, to approve a suitable officer structure providing sufficient resources to deliver the council’s functions in an effective way, including the Improvement Plan and its monitoring and reporting.
- Within 12 months, to review and change the council’s constitution.
- Within 24 months, to conduct a review of the roles and case for continuing with each subsidiary company of the council.
- To create a detailed structure and strategy for the Highways function.
- To establish a plan to deliver an effective file management system.
- To implement a programme of cultural change so both members and officers understand their roles and the way the council’s activities are regulated, governed, and breaches are rectified swiftly.
- To require the consent of commissioners before either member or officer level agree Heads of Terms for any property transaction and subsequent consent before any legally binding commitment is entered into.
The Secretary of State has also proposed to direct that prior agreement of commissioners must be obtained to any dismissal or suspension of Statutory Officers or the Assistant Director of Governance, Audit and Assurance, or equivalent.
Any appointments to positions designated as a statutory officer or the head of internal audit must also be conducted under the direction of and to the satisfaction of the commissioners.
He has also proposed that all executive functions associated with regeneration, highways and property management at the authority be transferred to the commissioners.
“These are for use should the Council not satisfy the Commissioners in their improvement processes,” he said.
“As I say, I hope it won’t be necessary for the Commissioners to use these powers, but they must, in my view, be empowered to do so to deliver the reforms that are required.”
The commissioners will report to the Secretary of State at six-monthly intervals on progress being made.
Following a recommendation from the Best Value inspection report, the Secretary of State has also proposed using his powers under the Local Government Act 2000 to provide for the city council to hold whole council elections for the first time from 2023.
This will be in addition to proposals for a reduced number of councillors elected on single member wards. “I also believe it would be preferable to move to single member wards at the earliest available opportunity,” Jenrick told MPs.
The council will be allowed to make representations from the report and the minister’s decisions by 24 May.
The forthcoming elections will proceed as planned, the Secretary of State said, and Liverpool City Mayor will be elected on 6 May and the Cabinet will have time to provide their views.
Commenting overall, Jenrick said this was “a rare occasion when central intervention is required”.
He added that the Government would work closely with the political, the business and the cultural leadership of the city and with the wider region, including with Steve Rotheram, the Mayor of the Liverpool City Region.
“We will do all that we can to support the city, as it recovers from the COVID-19 pandemic, and to give confidence to those who want to invest in the city to contract with the council, and to do business in Liverpool.”
In a statement the council said it took the findings of the Caller Report “extremely seriously”.
It added: “Crucially, Max Caller has made it clear that he believes the organisation has already taken steps to address the issues, since the arrival of chief executive Tony Reeves in 2018.”
The council has pledged to address all of the concerns raised and “continue its journey of improvement”, adding that its improvement plan would be published after the local elections.
Acting Mayor Cllr Wendy Simon and Mr Reeves said: “This is a difficult day for our organisation....The inspector’s report has highlighted several failings, but there is a collective commitment from both councillors and officers to learn from these mistakes.
“We would like to reassure all residents and businesses that we will take action to address all of the issues highlighted. We know we need to rebuild your trust.
“It is reassuring that the inspector believes we have made progress in starting to deliver the wholesale changes needed.”
They added: “A detailed improvement plan is being drawn up and will be implemented in full. We will be open and transparent about the progress we are making on each of the recommendations.
“This includes restructuring the organisation to strengthen our governance and ensure our work is aligned with our pandemic Recovery Pledges and the City Plan.
“At the same time, we will ensure we keep delivering essential services and offering a helping hand to the people of our city.”