Tiffany Cloynes 08 February 2021

The importance of managing public law and financial issues

The importance of managing public law and financial issues image

Recent events in local government have emphasised the pressures local authorities face in managing their finances. The London Borough of Croydon, received section 114 reports from its director of finance, investment and risk in November and December 2020. In January 2021 a report from the House of Commons Public Accounts Committee warned that it expects that more local authorities will soon be unable to balance their books and will be forced to issue section 114 notices in order to suspend non-essential expenditure.

The ability to manage and balance public law and financial responsibilities effectively is crucial if local are to address the many demands on their services successfully whilst staying within their resources. Local authorities which are not able to do this will find themselves receiving a report under section 114 of the Local Government Finance Act 1988.

Section 114 of the Local Government Finance Act 1988 imposes a personal duty on the chief finance officer of a local authority to make a report if it appears to him or her that the expenditure of their local authority in a financial year is likely to exceed the resources available to meet that expenditure. A local authority which receives such a report must meet and decide what action to take as a consequence and until it does so, the local authority must not enter into any new arrangement which may involve the incurring of expenditure unless the chief finance officer authorises it to do so. So, the issue of a section 114 report will have a severe effect on a local authority’s activities and local authorities will be keen to avoid receiving these.

Local authorities have always faced pressures on their resources because of the high demand for their services. The effects of the coronavirus pandemic have increased these pressures. Amidst concern about the potential for local authorities to struggle financially, CIPFA updated its guidance in the summer of 2020, encouraging chief finance officers to discuss their concerns with the Government and their local authorities before reaching the position of needing to issue a section 114 report.

Some local authorities have found innovative ways to use their powers to generate income, by developing strong income generation strategies and implementing them effectively, taking account of all relevant legal and practical issues. However, there has been concern about local authority activities such as investments or use of companies because of some high profile examples which have run into difficulty. This has shown the importance of considering all relevant information comprehensively before deciding to enter into such arrangements and monitoring how they progress.

Steps that local authorities can take to ensure they are in a good position to address public law and financial issues include:

  • Local authorities should ensure that when they take decisions and plan projects, they take account of their pervasive duties as well as legal issues relevant to the subject of the particular project. These duties would include best value and the public sector equality duty. Failure to comply with these duties could lead to challenges to decisions and to Government intervention.
  • Local authorities should make use of resources available to assist them with performance management. For example, the Local Government Association has run initiatives to support peer challenges and local authorities could make arrangements between themselves to review and challenge performance management arrangements.
  • Local authorities should ensure that they have effective scrutiny arrangements and that they take account of the messages that come forward from scrutiny committees.
  • When considering how to deliver their services and manage their resources, local authorities should ensure that they consider the full range of their powers and that they take account of any constraints and obligations associated with them. For example, local authorities have powers for charging and trading, which would provide scope for a range of activities for an income generation strategy. Local authorities would need to act reasonably in the exercise if such powers, taking account of all relevant matters, such as any risks involved and the resources needed to deliver any projects.
  • If local authorities are considering making changes to arrangements for the delivery of services, they need to be clear about their objectives and how the proposed arrangements will achieve these. They also need to be clear about how they will implement and monitor achievement of the objectives. For example, if they engage external service providers, they should ensure that their contracts contain terms and conditions that put the local authorities in a good position and that the local authorities are robust about exercising those rights.
  • Local authorities need to ensure that they are in a solid position in terms of complying with all their obligations and delivering effective services before they make innovations. An innovative approach can be helpful in enabling local authorities to manage resources and work effectively but it is important that attempts to introduce innovations do not distract local authorities from meeting their core responsibilities.

It is vital that local authorities get the balance right between the important issues of finance and public law. As well as the risk of a section 114 report and the consequences of this, local authorities who struggle to manage public law and financial issues could find it difficult to deliver services effectively and could find themselves subject to complaints and challenges to the lawfulness of their actions. Local authorities which are on top of public law and financial issues should find themselves in a good position to operate effectively and make good use of opportunities of innovation.

Tiffany Cloynes is a partner at Geldards LLP

SIGN UP
For your free daily news bulletin
Highways jobs

Assistant Director - Prevention and Service Development

North Yorkshire County Council
£86,252- £98,275 plus relocation support (up to £8,000)
Come and Join Team North Yorkshire! County Hall and around the county, including from home
Recuriter: North Yorkshire County Council

Principal Transport Development Planner

Suffolk County Council
£39,759 per annum (pro rata if part time)
A great opportunity to join the Suffolk County Council's Transport Strategy Team as a Principal Transport Development Planner. Suffolk County Council, Ipswich IP1 2BX
Recuriter: Suffolk County Council

Senior Manager - Asset and Network

Cheshire West & Chester
£56,593 - £62,792
This is a brand-new role developed out of our vision for the future of the recently established Transport and Highways directorate. Chester, Ellesmere Port, Winsford
Recuriter: Cheshire West & Chester

Provider Development Manager

North Yorkshire County Council
£50,183 - £58,379 plus relocation support (up to £8,000)
Come and Join Team North Yorkshire! County-wide – Hybrid
Recuriter: North Yorkshire County Council

Head of Integrated Care

North Yorkshire County Council
£60,567 - £69,001 plus relocation support (up to £8,000)
Come and Join Team North Yorkshire! North Yorkshire
Recuriter: North Yorkshire County Council

Partner Content

Circular highways is a necessity not an aspiration – and it’s within our grasp

Shell is helping power the journey towards a circular paving industry with Shell Bitumen LT R, a new product for roads that uses plastics destined for landfill as part of the additives to make the bitumen.

Support from Effective Energy Group for Local Authorities to Deliver £430m Sustainable Warmth Funded Energy Efficiency Projects

Effective Energy Group is now offering its support to the 40 Local Authorities who have received a share of the £430m to deliver their projects on the ground by surveying properties and installing measures.

Pay.UK – the next step in Bacs’ evolution

Dougie Belmore explains how one of the main interfaces between you and Bacs is about to change.