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The Local Government Act 2003 contains a lot more for councils to contend with than the new prudential code. ...
The Local Government Act 2003 contains a lot more for councils to contend with than the new prudential code.

Stephen Cirell and John Bennett look at some of the other areas the latest piece of legislation will affect

The Local Government Act 2003, which was passed a few months ago, contains a number of important provisions. The one area that has attracted most attention is the new prudential code, but other key features have had less publicity.

The municipal trading provisions

Municipal trading has been an issue for councils for over 20 years and so the new trading provisions in the act are to be welcomed as a clarification of the law and as a way to free up councils to engage in trading activities.

The provisions are split into two parts - powers to charge for discretionary services and commercial trading. While the distinction between the two might not be immediately apparent, the powers to charge for discretionary services are intended to clear up legal uncertainty surrounding such charging. However, commercial trading is entirely different and covers full risk-based trading by an authority, via a separate company.

In our view, by far the majority of trading activity will be charging for discretionary services. Commercial trading is far more complex and only a small number of councils are likely to do this, at least in the early days.

Comprehensive performance assessment

Sections 99 and 100 of the act cover performance categories under CPA.

Section 99 contains the basic duty on the Audit Commission to categorise councils into categories related to their performance. The formal duty is to produce a report on the commission's findings about the performance of councils. The report will categorise councils into the five bands and the report must be served on the secretary of state and then be published.

The secretary of state can then formally categorise the councils into those bands. There is an important separation of powers at work here - the commission und ertakes the assessment of councils in accordance with the predetermined procedures; the government, however, produces the league tables. Political interference is prevented by s99(5), which requires the secretary of state to ensure the commission's categorisations are given effect in the order and permits only typographical errors to be amended to prevent any council claiming its banding has been a political decision.

Employment issues

Sections 101 and 102 of the act govern the employment arrangements relevant to contracting out of services, with the former relating to transfers of staff, and the latter to pension arrangements.

Section 101 applies in contracting situations and obliges best value authorities to have regard to guidance issued on matters relating to employment, namely the Cabinet Office publication of January 2000, Staff transfers in the public sector - statement of practice. Section 101 merely gives statutory backing to what is in effect at this stage only guidance and so little is expected to change in practice as a result of this change.

Section 102 obliges the secretary of state to direct (under s101) that where a council is contracting out a service or function, it must require the contractor to provide the same or broadly comparable pension rights.

Business improvement districts

Part four of the act introduces powers to establish BIDs. While the formal statutory framework is new, the concept is well established in the US.

The provisions will allow councils to enter into locally agreed arrangements for the improvement of an area. The projects will be financed, in whole or in part, by a BID levy imposed on the non-domestic ratepayers or a class of them. The non-domestic ratepayers have to approve the proposals in a ballot. Even then the council may veto a proposal in certain circumstances.


Section 18 provides that regulations may make the actions of certain bodies count as the actions of a council for the purposes of the new capital finance provi sions. These include any regulated company under the provisions of part five of the Local Government & Housing Act 1989. While part five has so far remained as it is, the government has indicated it will be bringing out regulations under s117 of the new act to amend the definitions of what is a regulated company. The intention is to define such companies by reference to accepted accounting practices.

This could have serious implications for councils who are at the moment participating in company structures. Councils would be well advised to carry out an early review of their position.


There are a number of governance provisions tucked away in the act.

The first area is probity and ethics, where s113 contains two provisions intended to facilitate the local determination of misconduct allegations. First, there are new powers for standards committees to appoint sub committees to conduct a hearing and make determinations in cases of misconduct referred to the monitoring officer by an ethical standards officer in England, or by the local ombudsman in Wales.

Second, s113 gives new powers to monitoring officers to delegate their functions in relation to misconduct allegations referred to them by an ethical standards officer - or the ombudsman in Wales.

Finally s112 gives the Standards Board for England power for the first time to delegate any of its functions to

a committee, sub-committee, board member or an officer. This would enable, for example, the board to delegate decisions on whether to refer allegations for investigation - decisions which are at the moment taken collectively by the board.

In relation to scrutiny, the act also contains new provisions in s115 to allow authorities to give co-opted councillors on overview and scrutiny committees the power to vote, but only in accordance with a voting rights scheme prepared by the council.

The last area is financial probity, where part two contains new duties for finance officers to reportto

the council at its budget meeting, on the 'robustness

of the estimates' and the adequacy of the reserves. The finance officer must also authorise the council to take appropriate steps to remedy any serious finance difficulties during the 'prohibition period' following

their formal report.

Stephen Cirell, head of local government and Professor John Bennett, consultant solicitor, Eversheds local government group

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