In 2023/24 local authorities in England will receive some £60bn of funding from central Government. Secretaries of state are rarely content to hand over such sums without demanding a level of accountability for the use of that money, and seeking to retain some level of influence and control.

There are a range of ways in which ministers exercise that influence. As well as the regular production of extensive statutory and non-statutory guidance, ministers are keen to raise issues directly with local authorities. Recently women’s and equalities minister Kemi Badenoch MP demanded that Ofsted undertake a snap inspection of a school where it is alleged that a child was self-identifying as a cat which was seemingly condoned by teaching staff. And Lee Rowley MP, parliamentary under-secretary of state for local government and building safety, has also set out his concerns to South Cambridgeshire District Council about the extension of their four-day week trial for employees, indicating that a permanent change to the working arrangements ‘should not be adopted’ and promising more ‘guidance’ to address this issue and the development of ‘even clearer indicators to ensure that the sector is clear that such innovations should not be pursued’.

In less headline-grabbing interventions, ministers have applied conditions to specific requests for exceptional financial support. In July 2022, after criticism by Government of BCP Council’s use of capital receipts, the Government agreed to provide a further £76m with Paul Scully MP, the minister of state at the Department for Levelling Up, Housing and Communities, and Minister of State for London, indicating that BCP Council may need to submit to an ‘external assurance review’ including a review of its governance processes.

Croydon Council provides an extensive case study in the range of interventions that central Government can use. In 2021, after the council submitted a request for exceptional financial support the then local government secretary of state, Robert Jenrick MP, commissioned a ‘rapid non-statutory review’ which found failings in ‘governance, financial strategy and corporate investments’. That review recommended the formation of an Improvement and Assurance Panel which produced six reports to Government over a two-year period, the last of which expressed concerns over the pace and capacity to address the council’s financial difficulties. In March 2023 the Government indicated it was ‘minded to’ exercise its statutory powers to intervene.

For the most serious failings, the Government has powers to formally intervene and, effectively, take over the running of local authority functions. The powers to intervene are usually reserved for crises that fundamentally threaten the ability of a given local authority to function. As indicated, that might be a request for exceptional financial support, or where a council has issued an S114 Notice – a formal notice which prevents any further expenditure unless approved according to strict criteria, and signals that an authority is in acute financial distress and unable to meet its expenditure from its existing resources. Such notices have been recently issued by Croydon, Slough, Woking, and Thurrock Councils.

There are other triggers: in Sandwell MBC the Government exercised its statutory powers after external auditors raised concerns after undertaking a ‘value for money governance review’ which the Government used as evidence of the Council failing to comply with the Best Value Duty and justifying intervention.

The Local Government Act 1999 defines the best value duty as the obligation to secure continuous improvement in its services having regard to economy, efficiency, and effectiveness. Where a local authority is deemed to be failing to meet its duty, the secretary of state has powers to transfer the functions of the council away from its elected members and put them into the hands of appointed commissioners. It is considered to be a power of last resort and used only in circumstances where there is strong evidence that there is simply insufficient capacity to address the difficulties a given council finds itself in. The most recent intervention in Thurrock Council arose with the singular failure of their financial strategy of borrowing large sums of money to invest in – largely – green energy companies and using the returns on those investments to shore up the council finances. When those investments failed Thurrock found itself with an estimated structural deficit of £184m and trying to service debts of £1.3bn on its capital programme.

For the future, the new Levelling-up and Regeneration Bill gives further powers to the Secretary of State to issue Directions to local authorities to mitigate financial risks they may be facing, which may head off a Thurrock-type scenario happening again. In addition, the Bill allows the secretary of state to appoint an independent expert to review an authority’s level of financial risk with obligations on the local authority to cooperate with such an expert.

There are numerous news stories of councils in financial crisis that are contemplating the issuing of s114 Notices so it is likely the Government will be busy, at least in the short term, in using all the tools available to it to intervene in local authorities, whether that is done formally or informally. And yesterday’s launch of the Office for Local Government (Oflog) means the Government has one more tool at its disposal.

Nick Graham is director for Legal & Democratic Services at Buckinghamshire Council.

If you were interested in this feature, check out, 'Preventing future Section 114 notices'.

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