Scenario: A homeowner, who trusts her council, wishes to renovate her home and wants to use the services of her local authority as she knows they have a good reputation for work in this area. On approaching the council’s direct labour organisation she is told ‘sorry we can’t help’.
Until very recently this scenario was very real. However, provisions within the Local Government Act 2003 have removed the bar on local authorities trading with the private sector. Many councils have long campaigned for the right to trade in this way, arguing correctly, that not only are they at the centre of their communities with a key role in encouraging community re-engagement, they also have the requisite skills, resources and assets to provide a range of services to companies and individuals.
The 2003 act brought in the ‘power to trade’ in any of a council’s ‘ordinary functions’ (i.e. refuse collection). The statutory instrument was laid before parliament on 29 July this year. This new power will only be available to high-performing authorities.
Before using the trading route the local authority will need to have a business case approved by the Office of the Deputy Prime Minister. A separate trading company will then need to be formed. ODPM guidance on the trading powers suggests that the most suitable legal form will be a limited company accountable to shareholders. Directors will need to be engaged. They could include elected members and council officers as well as persons external to the authority.
There are a number of workforce and human resource implications involved with the trading route. Any transfer of local authority staff may be subject to TUPE, the Transfer of Undertakings (Protection of Employment) Regulations, which will guarantee their current salary arrangements. The employment and pension implications of staff transfers will also be regulated by the 2003 act.
Transparency of decision-making will also be important. Public access to information through legislation such as the Freedom on Information Act will need to be safeguarded. The local authority’s scrutiny role will also have a part to play in ensuring public and council confidence that the appropriate levels of openness and accountability are being adhered to.
If an authority is re-categorised as ‘weak’ or ‘poor’ after a Comprehensive Performance Assessment inspection it will no longer be able to use the power to trade. No new agreements can be entered into and any existing arrangements must cease after a period of two years – giving the authority sufficient time to regain the necessary CPA status.
With the details of the legislation out of the way what in practical terms can a local authority use this new power for? In broad terms, local authorities can play a valuable role in providing low value services to local citizens and communities where it is more economical and advantageous for them to do or where there is not a developed commercial market.
With the recent legislation allowing councils the power to borrow, authorities may go into new areas of enterprise. More specifically, the range of possibilities is wide. Areas that might be fertile ground could include: estate management; building work and maintenance for private organisations and individuals; managing privately run leisure and cultural facilities; catering; grounds maintenance; working to improve the environment of a local area through graffiti removal and improving the general streetscene; and providing IT and payroll services to a wide range of bodies.
The implications of such new ways of working are varied. Partnership working with the private sector, other public bodies and the voluntary sector can be undertaken. This can cement community cohesion whilst at the same time improving the social, economic and environmental ‘wellbeing’ of an area. The knock-on effect for the local job market should not be underestimated – for example, by providing apprenticeships in building skills: vitally important in many parts of the country suffering skill shortages.
A controlled local share issue can play a positive role in developing a stronger sense of ownership of the company and community identity. Moreover, the bottom line is a successful company can create better services and larger profits could produce a lower council tax charge.
Provided the employment and openness concerns are tackled at the outset, the opportunity to trade can positively affect community re-engagement and ‘ownership’ at the local level and develop economic, social and environmental well being in an area.