Dr Paul Feild looks at some of the lessons to be learned - including in relation to the legal team - from the best value report into at Liverpool City Council.
In December 2020 the Secretary of State for Housing, Communities and Local Government, appointed Max Caller CBE to lead a statutory Inspection at Liverpool City Council (LCC), to be completed by the end of March 2021. The power was under the provisions of section 10 of the Local Government Act 1999, as amended by the Local Audit and Accountability Act 2014 (the 1999 Act), as an Inspector to provide 'independent assurance that the council is complying with its Best Value Duty’.
Caller reported in late March 2021. The key finding was:
The evidence and events over the Inspection period leads to the conclusion. that there can be no confidence that the Council will be able to take and implement all the required decisions in a sensible timescale. As a consequence, the imposition of Commissioners, supported by Directions is recommended to stand behind the Council and ensure that the right decisions are taken at the right time. Para 1.5
There was a good resume of the report in Local Government Lawyer on 25 March 2021, so I will not repeat that. Instead, I want to comment on some re-occurring themes. Firstly, the governance of strong leaders and elected mayors, secondly governance of Local Authority Trading Companies, thirdly observations made about culture and finally the legal team which seemed to be piggy in the middle in all this and had a chapter of their own yet so far as I could ascertain were in no way at fault to the evidential failings set out in para 1.5 quoted supra.
In any local authority there are in fact two leaders firstly the political leadership and secondly the career employee leaders principally the Chief Executive, the Section 151 Officer, perhaps a Chief Operating Officer together with statutory directors of Children, Social Service and Public Health. Maybe there will be at the table a Monitoring Officer but not necessarily. In the pecking order they are not always first rank. Indeed, I have argued it is a mistake to no longer permit the Chief Executive to be both Head of the Paid Service and Monitoring Officer as used to be the case. I think it would send a message about its importance.
Furthermore, in the elected mayor or strong leadership model, the political leadership is in the paramountcy as they have in the case of the mayor the electoral mandate. You must be a wily Chief Executive to long term survive changes of political leaders, and while there is a reward for it the role can be quite precarious not dissimilar to that of the court of Henry Tudor. If such a culture of Leader’s fiat takes grip, then the ethical compass becomes an imperative. If that is lost, then like a flat bottom boat that ends up in troubled waters there’s little inherent stability to help correct and capsizing becomes an inevitability. David Prince observed in evidence to the Committee for Standards in Public Life:
“…reports have historically shown how, if unchecked at the outset, a corrosive and demoralizing culture can quickly take hold.” Written evidence to the 20th Report CSPL No. 31
This is exactly what happened in Tower Hamlets and in Rotherham. A further example was Lord Hanningfield in Essex County Council and his behaviours. The picture that is emerging is that the ethical framework established by the Localism Act 2011 just does not work with errant leaders. Essentially unless there is an external body to deal with complaints about standards relating to leaders and mayors then the local government organisation does not always appear capable of healing itself and must rely on Max and company intervening under the Local Government Act 1999 and whether that happens is up to the Secretary of State.
For those students of local government and standards we still await a Government response to the CSPL 20th Report published now well over two years ago. I considered it was flawed (see my critique of 13 September 2019 Local Government Lawyer) as it fails to tackle the contradiction of localism and a national expected minimum standards and ethical framework. I also consider the CSPL’s proposal of the decriminalising of members interest offences was a major mistake in their report, as it simply trivialises a serious matter.
Localism is what happens at a local level and that is determined by culture which always trumps standards imposed from above.
In a sense this Best Value Report process is beating about the bush in that there really ought to be an amendment to the Local Government Act 1999 which specifically refers to the power to intervene on the grounds of ‘governance’ rather than on the all-encompassing ‘best value’.
In addition, there needs to be the location of a duty regarding standards and governance, because surprisingly in the Local Government and Housing Act 1989 under the duties and responsibilities of the Head of Paid Service or the Monitoring Officer in neither case is the word ‘governance’ mentioned!
The Local Authority Trading Company (LATCo)
Second point is the governance of LCC’s local authority trading company. This is interesting because at para 5.26 we learn it is a Teckal company:
These services have been provided by LSSL on a cost-plus basis. Acting under Teckal rules, these costs have not been benchmarked or challenged since 2018. Para 5.26
To enjoy exemptions principally from competitive tendering obligation the local authority company must comply with the Public Contract Regulations 2015 (PCR). Let us look at the key provision:
Public contracts between entities within the public sector
Award of contracts to controlled persons
12.—(1) A public contract awarded by a contracting authority to a legal person falls outside the scope of this Part where all of the following conditions are fulfilled:—
(a) the contracting authority exercises over the legal person concerned a control which is similar to that which it exercises over its own departments;
(b) more than 80% of the activities of the controlled legal person are carried out in the performance of tasks entrusted to it by the controlling contracting authority or by other legal persons controlled by that contracting authority; and
(c) there is no direct private capital participation in the controlled legal person with the exception of non-controlling and non-blocking forms of private capital participation required by national legislative provisions, in conformity with the Treaties, which do not exert a decisive influence on the controlled legal person.
The point to make is about para 12(1)(a). Note how it talks of control as if being of a contracting authority’s its own department. The Teckal company has to be as if it were part of the local authority, yet I regularly see this stricture misunderstood as if a Teckal LATCo has a special insulated arm’s length status. Furthermore, this principle is a strong argument for not having members having day to day involvement in the company’s business such as making them directors for example. The directors should be professional career managers and specialists and supplemented by officers not elected members.
The Caller team observe that there was no shareholders agreement. Now as explained above to enjoy Teckal / 12(1) PCR exemption there must be control. Without shareholders' veto or mandatory requirement to refer certain decisions and from the report such meetings were rare then arguably the contention that the arrangement does not appear comply with Regulation 12. It also begs the question who drafted up the documentation to establish the company and what did the Liverpool LATCo’s auditors say about its governance and decision making. This is a key learning point, you cannot enjoy Teckal status and not comply with Regulation 12 PCR.
The report mentions bullying (para 4.1 & 4.2) which is interesting as this does not always come up in best value inspections so when it does it is of special interest. indeed it seems it was endemic:
Not every Officer was put under the same type of pressure or felt it in the same way: The Inspection Team heard from one Officer who did not experience a bullying culture as others did - they were not shouted at or threatened with the sack - but they did feel pressure to behave in a particular way with certain people and could not speak out as they would have wished. Para 4.2
Even more inexplicable was the story of the placing of files (by forces unknown) into skips:
On the property side, there was no coherent property-based filing system, nor even a project-based case file. It is accepted that documents relating to the early years of the Review Period were complicated by operational and professional property matters being outsourced to a joint venture with Mouchel under the Liverpool 2020 brand name. The subsequent reintegration into the LCC officer structure accompanied by what was described as a brutal service review substantially reduced staff, had a damaging effect on rent reviews and collection still being felt today, and resulted in much documentation being destroyed. Officers who survived the events talked about having to rescue case files from skips, each morning, to ensure they could deal with live matters. Para 4.4
Liverpool City Council have a web page entitled ‘what we do with your data’, and having perused it, there is no mention of the use of skips. I struggle to believe that a local authority would treat file disposal in such a way in that, firstly files are thrown into a skip and then surreptitiously staff could then apparently retrieve the said files. Were the files to be disposed of or not and how many were we talking about? So, if this was the practice there may be data protection implications. Casual attitudes to data protection are signifiers of culture and behaviour issues.
The Legal Department
Having read the report, I do not find really any evidence of the legal team being contributory to the failings yet apparently meriting a chapter [ii]. What about finance? Remember until sometime in 2018 the legal MO function was under the S.151 Officer (para 8.2). The picture seems to be about legal not being asked to take a full role and the resort of use of private sector firms. But in neither case is there any example of them getting the law wrong or giving incorrect advice. There is innuendo about a firm acting for a developer and the Council. But was that at the same time and on the same project? In my 30 years plus experience I have never seen a local, regional, or national firm ever take conflicts of interest with a local authority with other than with the utmost seriousness. Indeed, I can recall partners calling me and saying they have carried out due diligence checks for conflicts.
I would be very surprised if there was a major authority in the land which did everything in-house on major projects so why the mention of use of the private sector. In many cases the cost is picked by developer in such matters as highways agreements or s.106’s as an example.
Legal services were said by unattributable sources to be slow and struggled to keep up with the volume of work but carry on with it they did. We hear that the regeneration appeared in 2016 to declare a legal UDI, but what did the head of legal or that of finance have to say about it? Did it have their blessing and how could two posts be created without a business case being presented to a joint human resources management panel? Maybe they were for a specific project? I do not see the Caller team expressing a view as to whether it was a good idea.
Furthermore the Caller team mention about there being less than clarity about “Solicitor to the Council” but with respect, the clue is in the City Solicitor job title and job description and on reading the Constitution’s explanation of the City Solicitor's role it seems reasonable to me.
It seems we have been there before. The picture I get is that this affair backs up an emerging truth that if there are failings with strong leaders and mayors then the local authority body seems to need external intervention or otherwise it is unable to heal itself. But the use of “best value” as a descriptor for governance is strained. There needs to be a specific duty for governance at officer level and a specific power to intervene regarding governance in the Local Government Act 1999.
The Department for Housing Local Government and the Communities must respond to the CSPL 20th Report even if they say that it is not supported as conflicting with localism. But even if the 20th Report is not the way ahead the picture is that the Localism Act 2011 ethical framework is not robust enough to tackle poor behaviours of powerful local political leaders. It cannot be right that change and correction hinges on whether Max Caller comes calling.
Committee on Standards in Public Life (2014) Annual Report
Committee on Standards in Public Life (2019) 20th Report Local Government Ethical Standards A Review
Field. P, (2019) Localism and the CSPL, 13 September 2019, Local Government Lawyer
Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services (2019) Operation Lynemouth: Final report Inspection of the Metropolitan Police Service’s review and reassessment of alleged criminal offences arising from the 2014 mayoral election in the London Borough of Tower Hamlets
Judgment in the High Court of Justice, Queen’s Bench Division, in the matter of the Representation of the People Act 1983 and in the matter of a Mayoral Election for the London Borough of Tower Hamlets held on 22 May 2014 (M/350/14).
Pickles.E, (2017), Securing the ballot, Report of Sir Eric Pickles’ review into electoral fraud.
Caller.M, (2021), Statutory Best Value Inspection at Liverpool City Council
[i] Thanks to Yogi Berra
[ii] It strikes me of Abraham Maslow’s hammer principle – if you have a hammer in your toolbox everything can look like a nail.