Trading places

A brief history

Trading is not new. Councils have been able to trade using powers contained within The Local Authorities (Goods and Services) Act 1970. Using the 1970 Act councils have been able to trade with other local authorities and other defined public bodies and it is not limited to mere cost recovery. In other words trading under the 1970 Act has been legitimately used to make a profit. However restrictions applied to trading under the 1970 Act which meant that it could not be used for trading with the private sector of with local citizens. This fettered councils unnecessarily.

You got the power!

Councils have also been able to rely on a range of other powers (and equivalent legislation in Scotland) including:

• The Civic Restaurants Act 1947
• Section 145 of the Local Government Act 1972 (Provision of entertainments)
• Section 19 of the Local Government (Miscellaneous Provisions) Act 1976
• (Recreational facilities)
• Section 38 of the Local Government (Miscellaneous Provisions) Act 1976
• (Power to provide computers and computer facilities and making use of
• spare capacity)
• Orders made under section 150 of the Local Government & Housing Act 1989 (i.e. HMOs Charges for Registration Schemes, Recovery of Costs for
• Public Path Orders, Charges for Land Searches and Charges for Overseas Assistance and Public Path Orders)

What’s new?

Sections 95 & 96 of The Local Government Act 2003 contains new powers for local authorities (best value authorities) to trade in function related activities through a company and also provides for the regulation of those trading powers.

Section 95 provides power for the Secretary of State, to make an order enabling best value authorities (with certain exceptions) to trade in any of their ordinary functions through a company. That is why when the new power to trade came into force this enabled the scope of the trading powers to be related to an authority’s performance categorisation under the Comprehensive Performance Assessment regime (‘CPA’).

Government guidance on the power to trade for English authorities was limited to those who had a ‘4, 3, 2 or 1 star rating but excluded those with 0 stars considered weak or poor. Changes from the old inspection regime of Comprehensive Performance Assessment (CPA) to that of Comprehensive Area Assessment (CAA) has led to a need to review the ratings criteria in order to trade. A recent CLG consultation suggested that the criteria to trade will simply be extended to all authorities. You can read the full consultation using the right hand column of this page and going to ‘Government guidance notes and publications’. Government has now made good its promise and new guidance published in September 2009 has extended the powers to trade. You can read more about this here in APSE briefing 09-50.

Changes from CPA to CAA

New guidance on the categorisation of those authorities able to trade following the introduction of CAA on 1 April 2009 for English authorities can be found here alongside the statutory instrument.

Differences between Charging and Trading

• charging relates only to discretionary services, whereas the power to trade is for all services
• all best value authorities can use the power to charge and to trade
• charging is limited to the recovery of the cost of providing the service whereas trading can be at a profit
• the power to trade is only exercisable through a company

Trading and charging in Scotland

Trading and charging are not distinguished within Scotland and the differences between provisions within English and Welsh authorities and those within Scotland are stark.

Three provisions in the Local Government in Scotland Act 2003 are directly relevant to the issue of trading by local authorities, whether such trading relates to internal or external agreements. They are:

1. the duty to secure Best Value (which also repealed Compulsory Competitive Tendering (CCT) legislation)
2. the duty of Community planning
3. the Power to advance well-being.

The three measures are inter-connected.

Section 8 of the LGISA2003 amends the Local Authorities (Goods and Services) Act 1970 (LAGSA1970) so that the external agreements to which it applies relate only to trading operations, and defines those trading operations as those for which, under proper accounting practice, the local authority must keep trading accounts.

Within Scotland the volume of trading is subject to limitation for work using the 2003 Act powers, however the limit remains to be set by the Scottish Government.

Trading and charging in Wales

Section 95 of the Local Government Act 2003 allows the National Assembly for Wales to make orders conferring on best value authorities the power to trade on commercial terms, for a profit. The Act imposes certain conditions on the use of that power, and allows the Assembly to impose others by order.

As CPA (now CAA) did not apply in Wales the Welsh Assembly Government needed to make its own determination about how the powers might be restricted in Wales to safe guard Welsh interest. Such circumstances include:

• sustained and serious trading losses which called into question the overall financial health of the authority;
• clear evidence of an authority’s non-traded services (especially those which it is obliged to provide) suffering a significant drop in standards because of undue emphasis being placed on trading operations;
• major irregularities in trading accounts or lack of proper management controls;
• breaches of the bar on continuing subsidy to local authority companies, or of competition or State aid law.

Revised guidance is currently out to consultation in Wales though this predominantly relates to well being powers trading arrangements are referenced.

Trading and charging in Northern Ireland

The provisions within the 2003 Local Government Act do not apply in Northern Ireland and therefore Northern Ireland local authorities are subject to much more restrictive and narrower powers to trade and charge for services. However the availability of the Local Authorities (Goods and Services) Act 1970 is a particularly useful power however it is as originally enacted with many of the subsequent amendments to that Act not applying in Northern Ireland.

Northern Ireland councils must therefore identify a power available to them before undertaking trading and charging activity in much the same way as English authorities before the enactment of the Local Government Act 2003.