Governance under the spotlight

As Roman satirist Juvenal was always asking down the pub: ‘Sed quis custodiet ipsos custodes?’ (But who guards the guards themselves?). For the Ministry of Housing, Communities & Local Government (MHCLG) the answer is the redoubtable House of Commons Public Accounts Committee (PAC).

But if MHCLG is local government’s ‘teacher’ (in the sense of government overseer), PAC certainly gave the ministry’s own homework a solid marking on 15 May 2019. For it was then that PAC published its report: Local Government Governance and Accountability (the report). This gave some pungent recommendations to achieve closer, more effective and knowledgeable sector oversight. PAC was also not going to be fobbed-off with Sir Humphrey-type do-nothing verbiage. Specific action points were therefore included throughout.

In preparing the report, PAC heard evidence (on the local government side) from the Centre for Public Scrutiny, the Local Government Association (LGA), the Chartered Institute of Public Finance and Accountancy (CIPFA), and the leader of Stevenage Borough Council. Lawyers in Local Government (LLG) and the Society of Local Authority Chief Executives were surprising omissions. LLG in particular has significant value to contribute on local authority governance. The ministry fielded its permanent secretary and two other senior civil servants.

But what is good governance? CIPFA has indicated that in local government, this ensures decision-making is lawful, informed by objective advice, transparent, and consultative. The governance triumvirate head of paid service (chief executive), monitoring officer (often the authority’s most senior lawyer) and chief finance officer play a pivotal (and at best cooperative and cohesive) role in ensuring sound authority governance. The external auditor is also there in the public interest to ensure that all is well and to blow the referee’s whistle if not.

For (per section 20(1) of the Local Audit and Accountability Act 2014) the auditor must be satisfied that the accounts comply with relevant statutory requirements, that proper practices (see section 21(2) of the Local Government Act 2003) have been observed in preparing the accounts, that these present a true and fair view, and that the authority has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources.

However, it is clear from the report that external audit is in practice insufficiently extensive (creating an ‘expectations gap’) and overall sector checks and balances are not fit for purpose. MHCLG also appears to lack the ground-level sector knowledge needed to nip problems in the bud. In other words, proactively to prevent disasters in the first place rather than merely sweeping-up afterwards. A well-known case in point was Northamptonshire County Council which (as the Northamptonshire Telegraph put it) during 2018 ‘earned the name as the “worst-run council in England” and saw the government send in three commissioners to turn it around’.

The LGA in its evidence agreed that ‘Northamptonshire was an open secret’. But this activity was conducted ‘under-the-radar’ and kept out of the public domain. However, in a remarkable illustration of apparent protectionist complacency, the report states that ‘the Local Government Association told us firmly that greater transparency was not appropriate: “I think people who know what is going on know what is going on, and people who don’t, don’t. There is a good reason for that and I do not think it should change.”’

However, in PAC’s view ‘awareness only for those “in the know” is not good enough’. Where ‘there are serious concerns, there are strong reasons for these being made public without undue delay’. PAC therefore recommends MHCLG specify how it will improve transparency on governance engagement with individual local authorities. This includes a review of the information to be published by LGA under its MHCLG-funded sector-led improvement work and outlining steps the ministry will take to publish information and learning following formal interventions. The ministry should also assess the governance evidence base currently available to it and write to PAC by November 2019, setting out how it will address gaps it has identified.

MHCLG said that it would like to improve on pulling everyone together ‘so that they can share risk and issues’. But PAC challenged the ministry ‘to demonstrate that the clearer convening role meant more than “getting everyone together for a chat”’. So the ministry is expected within the next six months to outline progress in setting up the new panel, its work programme, the concrete actions the panel will take, and the timetable and intended outcomes the panel will be working towards. LLG will no doubt be seeking representation on this panel.

To compensate for reductions in central funding, some local authorities have taken on risky commercial ventures and accordingly borrow large amounts. This is financially hazardous if investments fail to perform as envisaged. PAC therefore recommends that MHCLG assesses and monitors the scale of long-term risk that authorities might have exposed themselves to through their commercial investments and ventures. Authorities should also bear constantly in mind their fiduciary duty to the public purse.

The picture emerging from the report is that of a local government sector flying through testing conditions with inadequate and patchy air traffic control. As PAC reports, MHCLG ‘has been reactive and ill-informed in its approach to oversight of the local governance system’. But there is a danger that the ministry will respond to the report simply by increasing demands on authorities for statistical and other information. Monitoring officers, already coping with a range of complex responsibilities, are unlikely to welcome additional floods of form-filling. They will, however, be keen to have a regular seat on the proposed local governance panel. This should enable them to add value with substantial breadth and depth of legal and administrative insight.

Nicholas Dobson writes on local authority law and governance