Local authority general power of competence: consultation analysis

Consultation theme 4: greater controls to accompany legislative changes

Five questions were asked in this section to seek views on greater controls to accompany legislative changes, to mitigate risk and ensure transparency and public accountability. Annex B summarises the questions asked within this theme.

65% of respondents expressed a definitive view on greater legislative controls to accompany wider freedoms and 35% of respondents either did not answer the question asked or provided more general observations rather than a conclusive position. Half of the respondents who expressed a definite view (individuals, stakeholders and local authorities) supported greater legislative controls or appeared open to proposals and the other half (principally local authorities) did not support further legislative controls or considered the existing framework to be sufficient.

Half of the respondents who expressed a definite view (individuals, stakeholders and local authorities) agreed that legislative powers should continue to require local authority activity to contribute local regeneration or other demonstrable local area wellbeing enhancement or were open to proposals whilst the other half (principally local authorities) did not support this proposal.

53% of respondents supported the introduction of greater reporting and disclosure requirements or were open to proposals whilst 26% of respondents did not feel that greater reporting or disclosure requirements are necessary. Those in support of this proposal noted that this would ensure that public funds are used responsibly and effectively, would increase public trust by demonstrating how funds are benefiting the community and provide a clear record of the impact of borrowing and investment activities.

A number of local authority respondents recognised that constraints would be necessary for reasons of accountability, to prevent unfair competition, to ensure best value, to promote a community-focused orientation to the use of a General Power of Competence and to protect public interests/funds.

Some respondents suggested that local authorities should seek to expand only into those areas where the specific expertise or assets of the authority make such commercial activity a natural progression of existing arrangements. One respondent noted that engagement in commercial activities that are already well-served by the private sector should be restricted as should the provision of financial services (such as banking or insurance) to prevent conflicts of interest and ensure financial stability.

Concern was raised that local authorities might be tempted to diversify into areas such as property development or luxury services, as has been evident in England, with significant financial consequences for the local area in some cases, which could divert resources from essential public services such as healthcare, education, and infrastructure and some respondents recommended that speculative real estate investments that could expose public funds to significant risks should also be restricted.

It was also noted that if local authorities were to engage in extensive commercial activities, it could complicate accountability and transparency, making it harder for residents to understand and oversee their actions and use of public funds.

Several responses noted the requirement to strike a balance between providing sufficient empowerment and flexibility for local authorities to innovate whilst ensuring effective legal constraints to maintain clear and accountable governance, ensuring that local authorities remain transparent and responsive to their communities. Some respondents emphasised that local authorities have limited resources, and it is crucial to allocate them efficiently to deliver their core statutory functions and meet local needs. Some respondents also noted that engaging in commercial activities either within or beyond the local area could disrupt local markets and create unfair competition.

Several respondents identified significant risks associated with either the introduction of a General Power of Competence or other wider legislative freedoms. Examples provided included: the potential for local authorities to divert resources and attention from core statutory functions to commercial enterprises; the potential for complex commercial ventures that obscure financial reporting and decision-making processes; engaging in activities beyond a local authority’s jurisdiction; and not having access to appropriate expertise, particularly as regards market fluctuations and regulatory challenges. These examples could result in poor service delivery and financial losses; reduced transparency and public trust; and loss of local focus and accountability respectively.

Some respondents noted that local government is facing financial and socio-economic pressures and requires the freedom to act innovatively, flexibly and creatively to sustain essential services and invest in community priorities. One respondent noted that restricting the activities which a local authority could pursue under wider legislative powers would undermine their ability to innovate for the benefit of the local area. Another suggested that introducing restrictions would limit the options available to local authorities for innovation and would be inconsistent with the statutory arrangements in other UK administrations.

Audit Scotland expressed a view that the use of any new General Power of Competence to establish commercial activities must be underpinned by:

• robust governance arrangements to ensure transparency, accountability, and ethical conduct in all commercial activities, including proper due diligence, risk assessments, options appraisals, thorough market research, avoidance of conflicts of interest, and clear decision-making processes; and
• training and development programmes to equip staff with the necessary commercial skills and knowledge to identify, evaluate, and manage commercial opportunities.

Audit Scotland also stated that it is fundamental that any commercial activities remain aligned with the local authority’s core mission and public service ethos, and the achievement of better outcomes for communities.

One local authority respondent noted that enhanced reporting requirements would promote the principles of accountability, risk management and informed decision-making within the local authority which would assist in delivering better outcomes for local authority residents/service-users.