My Lords, with the leave of the House I will repeat a Statement made in the other place earlier today by my right honourable friend the Secretary of State for Housing, Communities and Local Government, Sajid Javid. The Statement is as follows:
“Mr Speaker, with permission, I wish to make a Statement about the independent inspection report on Northamptonshire County Council. Everyone in this House, regardless of party, appreciates the crucial role that local government plays as the front line of our democracy—delivering vital services on which we all depend, helping to create great places to live and, in doing so, making the most of every penny it receives from hard-pressed taxpayers to secure better outcomes—all of which builds confidence and trust between local authorities and those they serve, which is why the situation in Northamptonshire is of such concern.
Prior to my instigation of the report, there were signs that Northamptonshire’s situation was deteriorating. External auditors at Northamptonshire had lodged adverse value-for-money opinions in audit reports, suggesting that the council was not managing its finances appropriately. The resignation of the former leader in May 2016 also signalled the need for change. As late as last year, the Local Government Association conducted a financial peer review which concluded that there were issues with delivering the ‘Next Generation’ reforms and, again, with mismanagement of its finances. The then chief executive, Paul Blantern, resigned in October 2017.
These reports, along with the concerns raised by district councils in Northamptonshire and by honourable Members of this House with local constituencies, prompted me to act, as I was concerned that there were potentially fundamental issues within the authority. On 9 January, I informed the House that I had concerns regarding the financial management and governance of the council. I therefore decided to exercise my powers under Section 10 of the Local Government Act 1999 to initiate a best-value inspection of the council, and appointed Max Caller, an experienced former chief executive and commissioner, to conduct this and report on whether or not the council was complying with its best value duty.
Mr Caller submitted his report on 15 March, and I placed a copy in the Library of this House so that everyone could see what he had found, and his recommendations. Before I go any further, I thank Mr Caller and his assistant inspector, Julie Parker, for their dedication and focus in conducting such a thorough and prompt review.
When I commissioned the best value inspection, I asked the inspector to consider four things in particular: first, whether the council had the right culture, governance and processes to make robust decisions on resource allocation and to manage its finances effectively; secondly, whether the council allowed adequate scrutiny by councillors; thirdly, whether there were strong processes and the right information available to managers and councillors to underpin service management and spending decisions; and, fourthly, whether the council was organised and structured appropriately to deliver value for money.
I have reflected on the contents of the Caller report. It is balanced, rooted in evidence and very compelling. The inspector has identified multiple apparent failures by Northamptonshire County Council in complying with its best value duty—failures on all counts. While I recognise that councils across the country have faced many challenges in recent years, the inspector is clear that Northamptonshire’s failures are not down to a lack of funding or because it is being treated unfairly or is uniquely disadvantaged compared with other councils.
Mr Caller says in his report:
‘For a number of years, NCC has failed to manage its budget and has not taken effective steps to introduce and maintain budgetary control’.
Furthermore, the complex structure of financial support meant that oversight was difficult and accountability blurred. The report says that Northamptonshire’s ‘Next Generation’ approach, which envisaged outsourcing many of the council’s functions, had no,
‘hard edged business plan or justification to support these proposals … which made it difficult to ensure a line of sight over costs and operational activity’,
‘made it impossible for the council, as a whole, to have any clarity or understanding as to what was going on’.
Similarly, the inspector found that Northamptonshire County Council used capital receipts to support revenue spend without documentary evidence demonstrating compliance with the statutory guidance and direction. Furthermore, until this February, there was no report to full council on the proposed projects and their benefits. He says:
‘Savings targets were imposed without understanding of demand, need or deliverability and it is clear that some Chief Officers did not consider that they were in any way accountable for the delivery of savings that they had promoted’.
On the question of scrutiny, the report says:
‘The council did not respond well, or in many cases even react, to external and internal criticism. Individual councillors appear to have been denied answers to questions that were entirely legitimate to ask and scrutiny arrangements were constrained by what was felt the executive would allow’.
I want to emphasise that the report also indicates that the hardworking staff of Northamptonshire County Council are not at fault and have worked hard to provide quality services. With all this mind, it is clear that I must consider whether further action is necessary to secure compliance with the best value duty. In doing so, I want to reassure the residents of Northamptonshire that essential services will continue to be delivered.
The inspector is clear that:
‘The problems faced by NCC are now so deep and ingrained that it is not possible to promote a recovery plan that could bring the council back to stability and safety in a reasonable timescale’.
He recommends that:
‘A way forward, with a clean sheet, leaving all the history behind, is required’.
I am therefore minded to appoint commissioners to oversee the authority using my powers under Section 15 of the Local Government Act 1999. From day one, I propose that they take direct control over the council’s financial management and overall governance. Getting these basics right must be the first step in stabilising this authority. I also propose giving them reserved powers to act as they see fit across the entirety of the authority’s functions if they consider that they must step in. My officials are writing to the council and district councils today to this effect, and they can make representations on this proposal. I will consider any representations carefully before reaching a final decision.
The Caller report makes a clear recommendation on restructuring, and notes there are a number of options available. So, in addition, I am inviting Northamptonshire County Council and the district and borough councils in the area to submit proposals on restructuring local government. I would like those councils to think about what is right for their community and the people they serve, and to come forward with proposals. This invitation and the letter to Northamptonshire that I mentioned earlier have been published today, and copies placed in the Library of this House.
It is clear to me that any proposals from the councils should seek to meet the criteria for local government restructuring that I have previously shared with the House: that they should improve local government, be based on a credible geography and command a good deal of local support. I will be particularly interested in hearing how the councils have consulted with their communities to ensure that Northamptonshire’s future is truly locally-led.
The findings of Mr Caller’s inspection report on Northamptonshire County Council are extremely serious, which is why this Government are prepared to take decisive action to ensure that local people receive the high-quality services they need and deserve, and to restore faith in local government in Northamptonshire. I commend this Statement to the House”.
My Lords, first I draw to the attention of the House my relevant interests as set out in the register—namely, that I am a councillor in the London Borough of Lewisham and a vice-president of the Local Government Association.
I thank the noble Lord, Lord Bourne of Aberystwyth, for repeating the Statement delivered by his right honourable friend in the other place earlier today. I welcome much in the Statement. The best value inspection report on 15 March makes tragic reading and highlights the total mismanagement of the affairs of the authority by the council. I pay particular tribute to Max Caller for the work he has done in submitting the report. I have known him for many years, and he is a very experienced former chief executive. I had the privilege to serve on the Electoral Commission with him for many years. I have huge regard and respect for him. It was a very wise choice to appoint him to undertake this review.
The problems with this authority have been building up for many years. The council has outsourced virtually every single service possible. I think in the end it employed only about 150 people directly. The peer review conducted last September warned of the difficult position the authority was in, yet soon afterwards the authority opened its brand new £53 million headquarters. It was actually opened by the Secretary of State who delivered this Statement in the other place earlier today. Soon after that we had the council effectively declaring itself bankrupt as an authority.
I know Northamptonshire and Northampton very well. I worked there for many years. I have been in Northamptonshire County Council many times, and I could not see much wrong with the old headquarters.
Then we had the revelation of the former chief executive being paid £1,000 a day as a consultant. This is not good. It is time we sent the commissioners in. Can the noble Lord give the House the timetable for making the final decision in this respect? If it is decided that commissioners are to be appointed, how long after that decision do we expect them to go into the authority? Would he expect the remit of the commissioners to be as extensive as recommended by the report? The finances of the authority will remain precarious for a number of years, so can the noble Lord tell the House what level of budget monitoring will be undertaken by officials in his department? What will their relationship be with the commissioners, if they are appointed and go into the authority?
On the reorganisation proposals, I am happy to welcome them in principle, but they need to be looked at very carefully. For any unitary authority to succeed, it first has to be adequately financed. Drawing lines on a map will not in itself solve the problems in Northamptonshire. There has to be a sense of credibility in what is being proposed. We have the county council suggesting a unitary council to cover the whole county. There are other proposals, including the suggestion of two unitary councils: north Northamptonshire and west Northamptonshire.
All this has to be looked at very carefully to see what the best arrangement is with no predetermination of what the structure should be. Northampton borough, which is a very historic borough, may well want to make the case for becoming a unitary authority in its own right. I know it was granted its charter by King Richard I in 1189, and was permitted its own mayor by King John in 1215. It is also the most populous urban district in England not to be administered as a unitary authority. I have no view at this stage on what is right, but all ideas must be looked at properly and heard fairly.
People in Northamptonshire deserve a proper, accountable local government delivering for them. The time has come for the Government to take the decisive action needed to deliver that.
My Lords, I draw Members’ attention to my registered interests as a vice-president of the Local Government Association and a councillor in the borough of Kirklees in West Yorkshire.
I thank the Minister for repeating the Statement. I share his comments that the failures in the governance of Northamptonshire in no way reflect on the many staff who clearly continue to provide services to the public to the best of their ability. Nor do they reflect on the majority of councillors, who, according to the evidence in the best value inspection report, were denied information and were thus not able to undertake their responsibilities as might have been expected.
As a consequence of the inspection, the Government have decided that commissioners should be appointed to take direct control of the council's financial management. This will undoubtedly result in the commissioners proposing that some of the very difficult cuts to services that many other councils have already made will now be made without proper democratic involvement. That is a terrible indictment of the senior officers and senior members of the council who failed to grasp that, like it or not, cuts in income of the scale experienced by local government inevitably lead to significant cuts in services.
Northamptonshire County Council’s response to cuts in funding was to adopt a full outsourcing and commissioning model. For all the reasons expounded in the inspection report—it makes tragic reading—this failed abysmally. The residents of Northamptonshire have been ill served by some of the senior directors of the council, but it is the residents who will suffer the consequences of the failure to get a grip on constantly reducing budgets and to deal with difficult decisions in a timely manner.
That leads me to comment on the financial pressures that local government is facing. As has been said many times in this House and the other place, local government budgets have been reduced by about 40% across the board, and will have decreased by 50%—by half, in other words—by 2020, in two years’ time. This is at the same time as demand for services for vulnerable older people and vulnerable children is increasing at a significant rate. The Local Government Association estimates a shortfall of billions of pounds by 2020 for local government to deliver the statutory services that it is required to.
However, I want to point out that failure to deal with challenging financial budgets is not confined to local government. Carillion is a good example of what happens in the private sector when budgetary situations are not grasped. Many councils are just about managing, and it seems that some will just about manage for only another 18 months or so. There are statutory services to be provided, and for some this will soon not be possible. This brings me to some questions for the Minister. Does his department really appreciate the difficult financial situation that many councils face? For instance, is there an analysis in his department of those councils that may be on the brink of being unable to fulfil statutory functions? I assume that there is such an analysis; maybe he will be able to tell us what planning has been done to meet that eventuality. I ask this so that other councils are not allowed to fall into the same difficulties that Northamptonshire has done, though for very different reasons.
In the case of Northamptonshire, the Government determined that there would be a reorganisation of the county council and district council model into a unitary model. I hope whichever model is chosen succeeds, because residents in that county deserve it to succeed. However, I doubt that will sort out the problem; as the noble Lord, Lord Kennedy, has said, if the financial situation is not resolved, simply moving geographical pieces for governance around the county will not solve it. Perhaps the Government will be able to spell out in the fair funding review which services they expect local authorities to deliver and which are not to be a priority. Until that is clarified, councils will continue to find their responsibilities and funding availability stretched beyond their ability to fulfil their duties.
My Lords, I thank the noble Lord, Lord Kennedy, and the noble Baroness, Lady Pinnock, for their contributions. I will try to deal with the issues that they raise. Both of them used the word “tragic” and I absolutely agree that this is a tragic situation that has arisen in Northamptonshire. I remind them both, particularly the noble Baroness, that it is clear from the Caller report and other investigations that this is not a failure because of finance; it is a failure because of governance. It is clear in the report that that is the case.
In response to questions from the noble Lord, I say that the timetable for the district councils and county councils to respond in relation to the appointment of the commissioner is 12 April. It will then be for the Secretary of State to consider any representations or points made. The Secretary of State would anticipate responding by the end of April and then, if appropriate, appointing commissioners to take on the role, which is clearly the direction that Max Caller and Julie Parker, in their excellent report, would anticipate.
On the timescale for the restructuring, I remind both the noble Lord and the noble Baroness that Max Caller says that restructuring is necessary. It is a recommendation of the report. This is not the Government’s view: it is a recommendation to the Government. We ask the relevant seven district councils and the county council to respond by the end of July. We are open-minded on the different options. It is important that we look at what the councils say, bearing in mind the considerations that apply to any restructuring, as my right honourable friend set out: the proposals should,
“improve local government; be based on a credible geography; and command a good deal of local support”.
My right honourable friend went on to say that the councils should state how they,
“have consulted with their communities”.
That is all absolutely right.
I echo what the noble Baroness said about the people working for Northamptonshire, who have clearly worked incredibly hard to deliver services and continue to do so, and what she said about many councillors finding themselves excluded from decision-making, questioning decisions or having the ability to critique, which is not how the local government service should operate and not how the vast majority of local government behaves.
The noble Baroness referred to financial pressures. Quite separately from this, we recognise that there are challenges, but I am keen to keep impressing the basic principle that this is not a failure because of finance. There is no unique feature of Northamptonshire—that it has been discriminated against or has not had the necessary finance. This is a failure of governance, as the Caller report readily recognises. In saying that, I acknowledge that we are looking at fair funding by 2021. That is an important principle and we will be considering the fair funding formula, but that is separate from this issue. Otherwise, I accept the points made by the noble Lord and the noble Baroness.
My Lords, I thank the Minister for repeating the Statement and declare my interest as a vice-chair of the Local Government Association. I have listened to this very troubling and sad case, which is probably harming the vulnerable children and elderly most of all by its failings. Can he assure me that there are robust mechanisms in place to support councils which are struggling early on, so that we do not get into these situations? In the education system, there was the Greater Manchester Challenge and the London Challenge, where schools got together and poorer functioning schools were supported by experienced heads to get better outcomes for the struggling schools. Is there such a system in the local government framework, particularly for councillors, who have huge responsibilities but may have no experience of social care or finance before arriving in post? Are there robust systems to ensure that they get the right support at the beginning to be able to give the best?
I thank the noble Earl for those points. First, interventions can and do happen. This is not the first intervention in local government services: there have been others for other reasons—Rotherham, Doncaster, Hull and so on. Naturally, any Government would be loath—that might not be too strong a word, but certainly wary—to intervene because of the importance of local government being just that. Of course, there are checks and balances within the local government system operating properly. There is proper scrutiny and there are proper balances. As I think I said on a previous Statement on Northamptonshire, we have looked carefully to see whether any other local authority is remotely in the same position and satisfied ourselves that there is not, but that is something that we obviously keep under careful scrutiny and review.
I also say—and should have said earlier in response to points made by the noble Lord, Lord Kennedy, in particular—that there will be regular reporting to the Secretary of State by any commissioners who are appointed to ensure that the correct procedures are instituted and proper progress made by those commissioners.
I declare my interest as chairman of the Local Government Association and leader of South Holland District Council. It is obviously regrettable when central government feels the need to dip its toes beyond just splashing about into local government, and it is a shame that there is not a way to avoid external commissioners going in, leaving the sector to be able to regulate this part of the world for ourselves—but clearly, under current legislation, it is not. It is with regret that I support my noble friend’s statement that it is time for the commissioners to go in.
I do not think that we should be leaving all the blame purely with Northamptonshire. Clearly local government in general is facing a very tight financial situation, although Northamptonshire cannot claim to be the worst funded. If it were, it probably would have had a case in saying that it was purely down to central government. But it is not the worst funded, and those that are considerably worse funded than Northamptonshire have not got into that state, so we have to accept that Max Caller’s report to a large extent is correct about the financial mismanagement by senior officers and the lack of political oversight while that was happening.
That said, the solution of sending in commissioners is fine but, on the reorganisation, I struggle to see how a change in structure will assist the financial situation because a restructure costs money in the initial years anyway. I would want some reassurance that the Government were prepared to underwrite any potential restructure costs. My real question is that there appears to be an inconsistency in the letter that has gone out today to council chief executives. It clearly says that a proposal from type B authorities—basically the districts—for some sort of reorganisation within Northamptonshire to at least two unitaries is the model that is being looked at, or would be preferred from the Government’s perspective. But that does not preclude a bid that includes a district council neighbouring Northamptonshire being part of the bid. That is largely because of the current structural arrangements of two councils—one in Northamptonshire and one in, I think, Oxfordshire.
The letter also says specifically that a single county model is ruled out. Does that mean a single county model with one district from a neighbouring borough is not ruled out? It is inconclusive, in the opinions I have had on that letter. If we are expected to advise the sector, it would be handy to have an answer to that question.
My Lords, I thank my noble friend Lord Porter very much for a balanced and temperate observation. I absolutely agree that it is clear from the Caller review that commissioner intervention is appropriate. Central government, under various political parties, has always been wary about interventions, but here it is undoubtedly the right approach and certainly the recommendation. Once again, I remind noble Lords that this is not a matter of finance; it is a matter of management and governance, as was made very clear by the Caller report: silo thinking; lack of team working; lack of challenge; and so on. No doubt, inappropriate financial decisions were made but they were based on an essential failure of governance according to the Caller review.
On the point made by my noble friend Lord Porter in relation to possible restructuring, the department and the Secretary of State are very keen to hear the views of the districts and of the county on that. That is important. It is made very clear in the letter that we want the determined views of the local councils before responding by the end of July. I would encourage councils to regard the fact that they can make recommendations about restructuring, which will be looked at by the department and the Government. Obviously there is time to consider this—if not at leisure, then certainly with some reflection, because I quite agree that it is a very important step to be taken.
House adjourned at 6.55 pm.