LOCAL AUTHORITY CHARGING AND TRADING

LOCAL AUTHORITY

CHARGING AND TRADING

Powers for charging and trading: what may be

achieved without a company

www.emlawshare.co.uk

Agenda

• Welcome, Introductions and Policy Context

• Drivers for change

• What are you trying to achieve?

• Examples of charging and trading powers

• Tricky areas

• Conclusions


The Autonomous Local

Authority • The financial reality of continued austerity

• How can the council respond to achieve financial self sufficiency

– Income generation

– Land and property/Accommodation

– Growth in productivity of the area

– Transformation and demand management

– Alternative service delivery vehicles

• What happens if the books won’t balance?


The financial reality of austerity

• Local authorities are the most efficient in the

public sector … and have had the biggest cuts

• Capital and Revenue have reduced

– Government Grant to reduce to 2020 (RSG to zero)

• Demographic pinch points:

– elderly care & primary school places

• New legislative requirements

• Opportunities

– LAs still have c£250bn assets

– Specific grants



Composition of total LG funding 2010/11

& 2019/20 (LGA Future Funding Outlook

2015)


The squeeze on council

spending


Some of the biggest spending

…


… is on the fewest people



Brexit – implications for LAs

• Economic impact on local economy

• Loss of European funds meeting social need e.g.

£11bn structural funds

• Additional cuts and increased taxes

• Recession?

– Reduced income

– Reduction in taxes (council tax and business

rates)

– Increased welfare need/cost

– Increased homelessness


Brexit – legal implications for LAs

• Domestic v European law (estimates suggest 14 -17%

law originates from Europe)

• The current rules still apply

• Potential challenge – breaches remain actionable

Procurement;

State Aid & competition law;

Employment;

Immigration;

Information Law;

Human Rights

• Increasing disregard for the rules?


Drivers for Change


Defining our terms

• Shared Services – collaboration between public

sector bodies to deliver services/provide facilities

• Outsourcing – the entering into of a contract with a

provider (private sector, social enterprise/third

sector, MBO/Mutual or JV) to deliver services


Defining our terms

• Joint Venture – collaboration between two or more

organisations to achieve a joint aim. Can be within

the public sector or public/private

• Social Investment – third party money invested

either for philanthropic reasons or for a commercial

return


Defining our terms

• Commercialisation/commercialism

– Councils operating in a more commercial way (e.g. internal trading, incentivised performance)

– Councils setting up corporate structures (can be for income generation or other reasons)

– Councils selling services commercially (to the public sector or more widely)


Income Generation, Trading and

Investment: Context • Funding

• Lowest public sector employment since ONS started

(1999). LA now 2.3m down c 700k since 2007

But - Opportunities:

• Capital assets and investments > £250 BN

• Technology

• Use charging and trading to

– Change behaviour

– Generate income streams

…understand the market, the politics and the culture


Income Generation, Trading and

Investment

Key questions:

• What do you want to do?

• Why?

• What is the best way to

achieve it?

…there is usually more than one way to skin a

cat & the audit trail needs to stack up!


Charging or Trading?

• How would you define:

– Charging?

– Trading?

– Income Generation?

• What are your purposes/motives?


Examples of Charging/Trading Powers

Local Authorities (Goods and Services) Act 1970

– Provision of goods & materials; administrative

professional or technical services; vehicles plant &

apparatus (including staff), works of maintenance and

supplies

– To “public bodies”

– On “such terms as to payment or otherwise as the

parties consider appropriate”

– Separate account



• Section 139 LGA 1972 Acceptance of gifts (real and

personal property) and incidental works

• Commercial and industrial waste

• Surplus computer capacity

• Entertainments and leisure

• Private housing

• Electricity



• Staff secondment s113 Local Government Act

1972

• Civic Restaurants Act 1947

• Section 45 Road Traffic Act 1988

(MoT testing)

• Section 97 Building Act 1984 (works)

• Section 32 Local Government (Miscellaneous

Provisions) Act 1976


Land and Property

• Buy & sell land including:

• s120 – 123 Local Government Act 1972;

• Town & Country Planning Act 1990 for

planning purposes; &

• Housing Act 1985

• Local Authorities (Land) Act 1963 (development)

• Sections 24-26 Local Government Act 1988

(privately let housing)


Land and Property

• Powers to Invest:

• s12 Local Government Act 2003

– Functions

– Assets

– Treasury management

• CIPFA Prudential Framework


Charging for discretionary services s93 Local Government Act 2003

• Limitation to cost recovery in s93, but flexibility

– Definition of “each kind of service”

– Time period for calculation “taking one year with

another”

– Corporate and Democratic Core included & other

overheads

– Charging discretion/Differential charging

• Secretary of State Guidance


Commercial trading through a company - Section 95 Local Government Act 2003

• Doing for a “commercial purpose” … ordinary

functions

– Not where “required” to do something i.e. duty

– Not where existing commercial activity

– Must be through a company or community benefit

society

• Trading Guidance

• Trading Order


Trading Order

Local Government (Best Value Authorities) (Power to Trade) (England) Order 2009

Business Case must contain:

– Objectives of the business

– Investment and other resources needed

– Risks and how significant these are

– Expected financial results and other outcomes expected to achieve

No subsidy – Council to recover staff &

other costs


General Power of Competence

“Power to do anything that individuals generally may

do” including things “unlike anything” that public bodies

do

Power may be exercised in any way whatever:

• Anywhere in United Kingdom or abroad

• For a commercial purpose or otherwise, for a charge

or without charge

• For the benefit of the authority and its area of persons

resident/present or otherwise

Not limited by powers that overlap… but


Boundaries and Limits

• Restrictions/limitations on other powers to be observed

• Power to charge (s3) may not be used if:

– under a duty;

– for a commercial purpose;

– and power to charge elsewhere

• limited to cost recovery

• Power to trade for a commercial purpose (s4) may only be exercised through a company or community benefit society


Boundaries and Limits

• No wider powers to delegate functions

• Secretary of State may amend, repeal or revoke

legislation which restricts the exercise of the

general power

• Secretary of State may constrain by regulations

• Still retain ultra vires rule - must exercise powers

properly, having regard to relevant considerations

business case, market, risks and likely rewards

etc.


Tricky Areas

• Regulatory areas e.g.

– Licensing

– Controlled Parking Zones

• Building control/legal services

• Provision of Services Regulations 2009

• Public Health functions

• Regeneration

• Incremental increases

Others?


Conclusions on Powers

• Explore all avenues and fit powers with purposes

• General power of competence is additional to

2003 Act (function related) and wide ranging

explicit powers (e.g. Goods and Services Act)

• Must exercise powers properly – for proper

purposes, taking into account relevant

considerations & proper procedures etc

• Be realistic on the Business case

• Stakeholders? Audit Trail?

• Internal Process/Guidance?

Legal Services

Alternative Business

Structures


Questions to address

• What is your motivation for what you want to do?

• Does this involve widening your client base?

• If so, who are your new target clients?

• What services do you want to provide?

• Does the current regulatory/vires framework allow

you to advise them in your current form?

• If so, any other reasons to adopt a new model?

• If not, what new structure do you need?

• What is your timescale for change?


Constraints on widening client

base


Specific Legal Constraints


Sections 14 to 16 of the Legal

Services Act 2007

In summary it is an offence for reserved legal

activities to be provided by an authorised person

through a non-authorised employer to the public or

sections of the public.


Legal Services Act 2007

Section 15 • In the context of the provision of legal services by a

local authority in-house team……..what is “the

public or a section of the public”

– Other local authorities?

– Other public bodies

– LA schools?

– Academies?

– Private sector suppliers to the council?

– Parents of children at LA schools

– All ratepayers in the borough?


Practice Framework Rules 2011

Rule 4.09

You may act for your employer’s holding associated

and subsidiary companies…

Rule 4.15

If you are employed in local government you may act

for another organisation…to which your employer is

statutorily empowered to provide legal services subject

to the conditions in (b) to (g) below

Derivation: Employed Solicitor’s Code 1990

& before


Rule 4.15 (b)….. you may act

• (b) for a member or former member of the

authority provided that

– (i) the matter relates to or arises out of the work of

the member in that capacity

– (ii) the matter does not relate to a claim arising as a

result of a personal injury to the member

– (iii) you are satisfied that the member does not

wish to instruct some other lawyer and

– (iv) no charge is made for your work unless those

costs are recoverable from some other source


Rule 4.15 (c)….. you may act

• (c) for a company limited by shares or guarantee

of which

– (i) the employer or nominee is a shareholder or

guarantor or

– (ii) you are, or an officer of the employer is,

appointed by the employer as an officer of the

company

• Provided that the employer is acting in pursuance

of its statutory powers


Rule 4.15 (d) to (g)………you

may act

• (d) for lenders in connection with new mortgages;

• (e) for a charity or voluntary organisation relating

to the area on a pro bono basis;

• (f) for a patient the subject of a Court of Protection

order or

• (g) for a child or young person subject to a Care

Order re CICB


Options

• In-house: remain within powers to act for others

• Other options:

– In house model acting for third parties but not

providing reserved legal activities

– In house providing reserved legal activities but

not for the public or sections of the public

– Shared Services

– Separate legal entity – law firm – ABS

• Teckal or Trading

• Choice of form


Compliance

• How is the new organisation going to be owned?

• Who will have day to day control?

• Regulatory Roles HoLP/HoFA

• Confidentiality, Conflicts and Complaints

• Who will do the work?

• How will it be managed?

• Sharing workers with an in house team?

• Shared office space


Insurance and Client Money

• SRA Minimum terms for PL

• Other E & O insurance

• Who will hold the client money

• Compliance with the rules/training

• Insurance/indemnity for Directors


Why would a council set up an

ABS? • Desire to hold on to clients who are

fragmenting/changing status e.g. outsourced

• Desire to provide legal services to anyone without

constraint and generate revenue

• Desire to commercialise legal services in the

context of other outsourcings/mutual

developments

• Basis for shared legal services across other

councils (but can you have a non ABS legal

services company?)

BUSINESS DEVELOPMENT /

BUSINESS GENERATION AND

MANAGEMENT

Preliminary issues and steps

before embarking on charging or trading


Agenda

• Business case and business plan

• Procurement

• Type of vehicle (if needed or desired)

• Governance issues

• State aid

• Other considerations


Key themes

• What is the justification for charging/trading?

• How will it be structured?

• Do we have to offer opportunity to others?

• How will decisions be made?

• How will we resource the activity?


Business case

• Necessary?

• Local Government (Best Value Authorities) (Power to Trade)

(England) Order 2009/2393; see also OPDM Guidance

• Business case = comprehensive statement of:

– the objectives of the business

– the investment and other resources required to achieve those

objectives

– any risks the business might face and how significant these

risks are, and

– the expected financial results of the business, together with

any other relevant outcomes that the business is expected to

achieve


Business case

• Identify the drivers for change

• Define your objectives

• In a commercial context, understand the market

• What is the demand – who will buy this?

• What is the competition – why should they buy it from

us?

• Who is best to deliver: be honest

• Are you prepared to see failure?

• Detailed options appraisal

• Resourcing required & likely returns


Business plan

• A road map for the operation of the business/new model

including market analysis, SWOT of the business, finances

(income, expenditure, borrowing, cash flow, reserves etc) and

marketing plan

• Detailed market analysis

• How do you price to compete (NB state aid)

• What skills are required to deliver the plan?

• What resources are required?

• Do you need to change working practices?

• Impact on the rest of Council

• Unit cost issue and ever reducing core

• Service Integration and management


Procurement

• Covers contract awards for goods, services and

works above thresholds/cross border interest

• Applies to contracting authorities incl. entities

which are bodies governed by public law

• Direct awards

• Advertised competition

• Risk of challenge


Type of vehicle

• Common vehicles

– Company limited by shares

– Company limited by guarantee

– Community interest company (shares or g’tee)

– Limited liability partnership

– Community benefit society

• Common features

• Others? Limited partnership, contractual JV,

partnership


Governance issues: Council

• Council decisions as “owner”:

– Reserved matters, appointment of directors,

“AGM” decisions

– Executive function

– Where will expertise lie?

• Council decisions on matters relating to vehicle

• Conflicts

• Bias and predetermination


Governance issues: Council

• Will company be a “regulated” under Part V LGHA

1989? (controlled or influenced)

• Impact:

– Financial support

– Information disclosure and restrictions

– Directors – disqualification and allowances

– Auditor


Governance issues: directors

• Statutory duties

• General duties in law

• Conflicts – who sits where? Members and

officers.

• Possible liabilities

• Will the Council protect its directors (and how)?


State aid

• What is it?

• When is it permitted?

– General Block Exemptions

– De Minimis Regulations

– Notified aid or aid declared compatible

• When is there no State aid?

• Market economy investor principle – debt, equity,

resources and guarantees


Other considerations

• Transfer of data & use of ICT

• What happens on exit?

– Assets

• Transparency v commercial confidentiality

• FOIA/EIR

– Companies owned by the “wider public sector”

• Role of scrutiny

• Remuneration?

• Public interest reports – City of York Trading Ltd


Emerging Models

• New corporate and commercial structures

• Outsourcing/insourcing/joint ventures

• Shared services – the next generation

• Property and housing vehicles

• Legal ABSs/Building control companies

• Social enterprises/mutuals

• Social investment/social impact bonds

BUSINESS DEVELOPMENT /

BUSINESS GENERATION AND

MANAGEMENT

Benefits and pitfalls of establishing one or more

vehicles for the purposes of charging or trading


Benefits – Increasing business

efficiency


Ring-fencing liabilities/risks

and enabling third party stakes


Facilitating external funding /

security


Precursor of business unit sale


Pitfalls

• Insufficient business – the “white elephant”

– Set up costs

– Tax

– Reducing the scope of a business over time

• Dependencies still located within Council/partner

– Failure of due diligence

– Particular issue for JVs – partner may hold JV

to ransom


Pitfalls

• Procurement and State aid

– Overstepping the bounds of what is permissible

as a direct award

– Not recognising the costs/value of resources

provided

• Employment and pensions issues

– Lack of clarity around staff

– Direct employment, transfer or secondment?

– Pensions (and cost to vehicle)


Pitfalls

• Complexity of arrangements within subsidiaries

– Lack of consistency

– Training

• Directors’ duties

– Acting too rashly or too timidly

– Not recognising the personal exposure

– Protections

• Administrative burden

– Companies House, Charity Commission, others?


Check out the website …


Foundation principles for

business generation and

management


Develop your

markets

Develop your

brand

Develop your

marketing

Develop your

clients

Foundation principles


Developing your market

opportunity

Identify your market

What’s the market issue?

Develop the service at the

right price Profit

Accessing the market


Would the council brand deliver

this?


Developing your marketing

How are you

different?

Marketing channels

Campaign planning

Calls to action

Analysis and develop


How are you different?

Speed

Value for money

Skills and experience

Excellent customer care

Provide security and reassurance




Marketing channels

Campaign planning

Calls to action



Marketing channels

PR

Advertising

Door Drops and Leafleting

Direct Mail

Email




Marketing channels

Campaign planning

Calls to action



Developing your customers

Who are your most important

customers?

Are you listening to

your customers?

Where do you hold customer

information

Access to customers

Customer care


Priorities in 2017/18

• Research, analyse, strategize Markets

• Why would you be trusted? Brand

• Are you listening? Clients

• Targeted campaigns, head over heart Marketing

• Deliver profit not just income Investment

Date post:	04-Apr-2022
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LOCAL AUTHORITY CHARGING AND TRADING

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