Local Government Stewardship Update

All hon. Members will recognise the critical role local councils play in providing essential statutory services to their residents and being accountable to the communities they serve. Where councils do not meet the high standards that we set for local government, it is right that the Government intervene in order to protect the interests of residents. Today, I am informing the House of statutory guidance on best value standards and intervention; action the Government have taken in relation to part-time work for full-time pay, including the reissuing of a best value notice to South Cambridgeshire District Council; inspections of Warrington Borough Council and Spelthorne Borough Council; and a proposal to continue the intervention at Liverpool City Council and appoint a statutory board.

Following consultation last summer, which ran for six weeks between 4 July and 15 August 2023 and received 76 responses, the Secretary of State today, under section 26 of the Local Government Act 1999, is issuing statutory guidance on best value standards and interventions. Accompanying the guidance is a summary of the consultation responses received and the Government’s response to the consultation that details the changes made following the consultation. The draft guidance was well received by the local government sector.

The guidance provides greater clarity to local government in England on what constitutes best value and the standards expected, and a clear escalation pathway involving the various models of statutory and non-statutory intervention in the event of failure to uphold these standards. Local authorities, including combined authorities and combined county authorities, are required to have regard to this guidance when carrying out their functions.

The guidance includes reference to council staff undertaking part-time work for full-time pay without compelling justification as an indicator of potential best value failure. This is in accordance with non-statutory guidance on four-day working week arrangements, which was published in October 2023 and makes clear the Government’s view that these practices are unlikely to adhere to the best value duty. The best value guidance demonstrates that we will take action where an authority is not using its resources effectively and does not have a credible workforce strategy. As part of this, I have today reissued a best value notice to South Cambridgeshire District Council, given the trial it is continuing to undertake of a four-day working week.

Warrington Borough Council is one of a small number of councils carrying the biggest risk in terms of debt leverage. The council is the most indebted unitary authority in England, with a capital finance requirement of £1.85 billion—5.5 times its total service expenditure (as of March 2023).

My Department commissioned the Chartered Institute of Public Finance and Accountancy to undertake a detailed review of Warrington’s capital finances. The review, which we are publishing today, found that its portfolio of debt-funded investments is very large and uniquely complex—to a degree that is concerning and puts the council at risk. The report also raises some concerns with decision making, governance and oversight. Having regard to that report, together with the council’s response, and other information, including meetings with the council, external auditor reports and the decision in the July 2023 cabinet meeting to conclude two new loan agreements for up to £145 million and subsequent reversal of this decision, our assessment is that there are clear financial risks and that, if they materialise, they are very likely to have significant impact on local residents and some impact on the national public purse.

The Secretary of State has exercised his powers in section 10 of the 1999 Act to appoint Paul Najsarek as lead inspector to assess the council’s compliance with its best value duty, and specifically in relation to council functions of governance and section 151 of the Local Government Act 1972 and the strength of associated audit with particular attention to the decision making and scrutiny and risk arrangements; the capacity and capability across the organisation but particularly the finance function, and whether this is sufficient to meet the best value duty; the adequacy of the council’s plans and capacity to address the recommendations made by the CIPFA capital review and to control its debt levels and reduce them over time; what an appropriate level of capital risk would be for the authority, with regard to the statutory guidance on best value standards and intervention; the impact the investment portfolio and its management has had on service delivery; and the prudence of financial decision making. The lead inspector has been asked to report findings by 30 August 2024, or such later date as may be agreed, and will be able to request the appointment of assistant inspectors.

Spelthorne Borough Council is another one of the small number of councils carrying the biggest risk in terms of debt leverage. Their debt stands at nearly £1.1 billion (as of March 2023), which is 52.4 times its total service expenditure and is the second highest level of debt for a district authority in England, after Woking.

Again, my Department commissioned CIPFA to undertake a detailed review of Spelthorne’s capital finances. The review, which we are publishing today, highlighted concerns around governance and decision making, alongside a significant and expanding risk profile. Having regard to that report, together with the council’s response, and other information, including meetings with the council, the public interest report issued in 2022 and the Local Government Association’s corporate peer challenge from 2022 and follow-up visit in 2023, our assessment is that if the risks materialise and Government need to step in, there may be a considerable burden on the Exchequer.

The Secretary of State has therefore again exercised his powers in section 10 of the 1999 Act to appoint Lesley Seary as lead inspector to assess the council’s compliance with its best value duty, and specifically in relation to council functions of governance, section 151 of the Local Government Act 1972 and the strength of associated audit, scrutiny and risk arrangements, with particular attention to the governance arrangements and decision making conducted across the council; the capacity and capability across the organisation, but particularly the finance function, and whether this is sufficient to meet the best value duty; the adequacy of the council’s plans and capacity to address the recommendations made by the CIPFA capital review and to control its debt levels and reduce them over time; what an appropriate level of capital risk would be for the council, with regard to the statutory guidance on best value standards and intervention; the council’s capacity to implement the new housing strategy; the impact the investment portfolio and its management has had on service delivery; and the prudence of financial decision making. Given that our concerns relate to broad decision making and whether the standards expected for effective and convenient local government are being upheld, the inspection will consider decision making in relation to those functions, encompassing leadership, governance, organisational culture, use of resources and impact on service delivery. The lead inspector has been asked to report findings by 30 August 2024, or such later date as may be agreed, and will be able to request the appointment of assistant inspectors.

Once the inspections are complete, we will carefully consider the inspection reports. If they show either council is in breach of its best value duty, we will then consider whether or not to exercise powers under section 15 of the 1999 Act.

Liverpool City Council has been under statutory intervention since June 2021, following the best value inspection, with four commissioners appointed to exercise functions relating to regeneration, highways and property. In November 2022, the Secretary of State issued further directions to expand the intervention to cover finance, governance and recruitment and appointed an additional commissioner. On 7 March 2024, I confirmed to the House that the Secretary of State had updated the directions as the intervention approached its scheduled end date of 9 June 2024, and reduced the scope of the intervention by returning certain functions to the council. I also informed the House that the commissioners considered at that time that some form of statutory intervention would be needed beyond the scheduled end date, that the next report from commissioners was expected later that month, and that I would update the House in due course.

The commissioners wrote to the Secretary of State on 15 March with their fifth report. The report, published today, documents the strength of the council’s leadership and their commitment to drive the improvement needed. There has been significant improvement in many of the council’s activities, particularly in the last year. However, the council started from a very low base and there was slow progress in the first half of the intervention. Under the new leadership, we have seen the pacing of improvements accelerate significantly, but there are a number of areas which need further improvement and there has not been sufficient time to demonstrate to commissioners that improvements are embedded throughout the council. The commissioners have recommended that the intervention continues until the end of March 2025.

Having reviewed the report and all other relevant information, today I am announcing that the Secretary of State is satisfied that despite the significant improvement, especially over the last year, Liverpool City Council is not yet meeting the best value duty.

The Secretary of State is minded to exercise his powers under section 15 of the 1999 Act to continue the statutory intervention until 31 March 2025 to enable focus on the improvements across the authority and provide assurances on continuous improvement needed to meet the best value duty.

Consistent with the recommendation made by commissioners in their latest report, the Secretary of State is minded to appoint a statutory assurance and improvement board instead of the current commissioner model, reflecting the progress made by the council, and because there is strong and committed leadership. The board would provide oversight, advice and challenge to the council, and would not be able to exercise any functions of the council.

To support this, the Secretary of State has proposed new directions he is minded to issue to the council. He is minded to direct the council to undertake a range of actions to the satisfaction of the assurance and improvement board, including:

To allow the board to provide advice and challenge to the council on all areas of work related to any relevant improvement indicators; and

Directions that require the council to undertake specific actions in relation to property, to continue finance improvements, to build capacity and capability for regeneration and to further embed culture and performance management throughout the council.

These proposals are subject to the council meeting specific conditions to the satisfaction of commissioners, in regards to property, in May.

The Secretary of State is considering the composition of the proposed board. He agrees with the commissioners about the importance of continuity and providing expertise that best supports the council with the improvement needed. The Secretary of State considers that, if he were to decide to appoint a statutory board, he is minded to appoint Mike Cunningham CBE QPM as chair of the board. He is considering the appointments to other board positions.

All interested parties are now invited to make representations to the Secretary of State about the report and the changes to the intervention that he is minded to make with respect to Liverpool City Council, by close on Monday 13 May 2024. The Secretary of State and I will consider carefully all the representations before making a final decision on whether to make these proposed changes to the Liverpool intervention and issue new directions to the council, and on any appointments.

I want to acknowledge the work of the dedicated staff who deliver the important services of local authorities, on which local residents depend, and also the work of local councillors, and in particular those who have just been elected. I also want to thank the commissioners in Liverpool and other councils in statutory intervention for all they do. I will deposit in the Library of the House copies of the statutory guidance, reports and associated materials.

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