Fifth Standing Committee on Delegated Legislation
Wednesday 20 October 2004
[Mrs. Irene Adams in the Chair]
Draft Local Authorities (Indemnities for Members and Officers) Order 2004
2.30 pm
The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Phil Hope): I beg to move,
That the Committee has considered the draft Local Authorities (Indemnities for Members and Officers) Order 2004.
I am delighted, Mrs. Adams, to serve under your chairmanship for the first time. I hope that we work through this afternoon's business efficiently.
The order enables a relevant authority in England or a police authority in Wales to provide indemnity to any of its members or officers out of public funds for personal liability arising from actions or decisions taken by them in the course of their duties. With your permission, Mrs. Adams, I shall briefly set out the scope, the background and the key features of the order.
The order permits but does not oblige relevant authorities in England and police authorities in Wales to provide indemnity for any of their members or officers if the member or officer had acted honestly and in good faith when taking the action giving rise to the liability; if the matter in respect of which the liability arose proves in some way beyond the powers of the authority, provided that at the point at which the member or officer acted that member or officer honestly and reasonably believed that the action or advice giving rise to the liability was within its powers; and to cover the costs incurred by a member in relation to the defence of proceedings under the code of conduct, but limited to cases in which the member is found not to have breached the code.
Mr. Eric Pickles (Brentwood and Ongar) (Con): Will the Minister confirm my reading of the order, which is that a different test is applied to those subject to proceedings under the code of conduct in one respect—that even if they acted honestly, and even if they followed the advice of officers, if they are found guilty of breaching the code they will still be liable and will not be covered by the indemnity?
Phil Hope: I confirm that that is the case. I shall spell out in more detail exactly why the hon. Gentleman is right, and why we chose to take that route.
Mr. Peter Kilfoyle (Liverpool, Walton) (Lab): When my hon. Friend spells those things out, will he enlighten me? He may remember a famous case of 20 years ago involving Liverpool city council. A notional loss was made through the late setting of rates, which resulted in a fine of £106,000. The case went to the
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House of Lords, where it was argued that people had acted in good faith. Further to the intervention of the hon. Member for Brentwood and Ongar (Mr. Pickles), will my hon. Friend clarify what will happen in such cases? I note that he said that they are unaffected by the order; I presume that it is subsumed into the local government code of conduct.
Phil Hope: I will answer the point at length in a moment, Mrs. Adams, but if an elected member is found to be in breach of the code of conduct he will be liable, and will not be covered by the indemnity. However, if he is found not to have breached the code, he will be indemnified. In effect, the council will pay the costs of his defence; but if the code of conduct is found to have been breached, he will have to pay back any costs incurred by the council in defending the case. If I have confused my hon. Friend, I shall return to that point in detail.
Mr. Pickles: Will the Minister give way?
Phil Hope: If I may, I shall say a little more. If I have not sufficiently clarified the point, I shall allow hon. Members to intervene on me.
The matter was raised during the passage of the Local Government Act 2000, but there was insufficient time then to complete the necessary work; the order gives the Secretary of State the power to specify when indemnities may be granted.
The reason for the order is that there has been uncertainty about the extent of the powers of authorities to indemnify their members and officers from public funds for any personal liability arising from actions or decisions taken by them in the course of their official duties. In the past, local authorities have relied on various statutory provisions that either exclude liability or permit some indemnities to be granted. However, doubts have arisen about the extent to which authorities can provide indemnities, particularly where individuals incur personal liability for their actions on external bodies to which they have been appointed by their authority. There have also been doubts about the scope to cover actions that are ultra vires for involved negligence. Given the importance that the Government attach to local authorities working in partnership with other bodies, and given that they are asking local authorities to use their powers innovatively to ensure the delivery of high quality and cost-effective services, it is important that these matters should be clarified.
In addition, the order is intended to set out when authorities can provide indemnities for their members regarding code of conduct investigations resulting from the new ethical framework introduced by the 2000 Act. Local authority members have been concerned about being left liable for costs relating to investigations, particularly with regard to what they may regard as vexacious complaints. I will say more about that later.
The order was the subject of a consultation process last year. We received a substantial number of responses—about 576—which were generally positive about the proposals. The majority of responses were from relevant authorities, but they also came from a
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range of other interested parties, including representative bodies, solicitors and an insurance company. As a result of the responses to the consultations, we made several changes to the proposals in the original order. Most were minor drafting changes to clarify the intentions of the order, but there were two substantial changes relating to the code of conduct investigations and the repayment of up-front indemnities.
I shall talk now to the key features of the order and explain the context of changes made following the consultation. The order applies to members and officers of relevant authorities in England and police authorities in Wales. The scope is intentionally wide-ranging and reflects the scope of the enabling power in section 101 of the 2000 Act. The term ''officer'' could be taken to include all those employed by the authority for the purpose of the discharge of the authority's functions. Co-opted members and sub-committee members could both be covered under the proposals. Elected mayors are also covered.
The order states:
''No indemnity may be provided . . . in relation to any action by, or failure to act by, any member or officer which . . . constitutes a criminal offence; or is the result of fraud, or other deliberate wrongdoing or recklessness on the part of that member or officer.''
That means that actions taken honestly and in good faith can be covered by the authority. Negligent actions, provided that they meet the test of not being criminal, fraudulent, and so on, are also capable of being covered.
An important feature is that the order is intended to facilitate joint working between authorities and partners. It provides for members and officers to be covered by an indemnity for work that they do on outside boards and partnerships, provided that certain conditions are met. The order makes it clear that the member or officer does not have to be acting in his or her capacity as a member or officer; they may, for example, be acting as a director of a company in which the authority has an interest, or they might be a trustee of a charity, which is familiar to many hon. Members who come to this place through the local government route. In such a case, the relevant issues are whether he or she is acting at the request of the authority, with its approval, or for the purposes of the authority.
Mr. Pickles: There has been a degree of uncertainty for about four years. During that period there have been about 7,000 individual cases, just on code of conduct and, to the best of my ability to ascertain the position, there have been about 350 cases relating to the major area. What happens with regard to any indemnities that the authorities might have made under what they thought was the existing law? Are those covered now?
Phil Hope: If I understand the hon. Gentleman correctly, he is referring to somebody making a decision on the basis of understanding the law and powers of the authority, but later on there is a case in some other part of the country—or something happens—the matter is clarified and the decision that they made, or action they took, was outside the powers of the authority. If that were so, they could still be
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indemnified under the powers of the order, as long as they acted in good faith and it was clear that they did so reasonably, in the belief that what they were doing and the advice they were giving was within the powers of the authority, and they could not have predicted that a court somewhere else, dealing with another case in another authority, would mean that the advice that they gave previously was ultra vires. They would be covered so long as they could be shown to have acted reasonably. If they knew that what they were doing was ultra vires, they would not be covered.
Mr. Pickles: I want to be clear, because this is an important point. Does the Minister mean that were an individual—a councillor or officer—to receive an indemnity under what the authority regarded to be the law, that individual would be covered by the order? Secondly, what is the relevant time? Is it the start of the action, or the judgment?
Phil Hope: In answering the hon. Gentleman's first question, I might have misinterpreted what he was saying. I want to make it clear that any indemnity previously given will apply, but none can be given retrospectively under this order. When the power comes into being, there will not be any backdating. Authorities will not be able to establish insurance schemes to apply to previous allegations or cases. It cannot be retrospective; it will apply from the day on which the council takes out the new indemnity scheme that the order will empower it to do.
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