At last month’s full council meeting (read live coverage), leader of the Isle of Wight council Jonathan Bacon, told members (those are the 40 elected councillors) they would have “criminal and civil financial liability” if they did not set a lawful budget when they could. The 2016-17 budget is due to be voted upon on Wednesday 24th February.
Advice from legal officer
It has taken nearly two weeks, but this week the Isle of Wight council finally issued written advice for councillors (Cllr Bacon said the officer had been absent from the office for a few days).
It sets out their duties in relation to setting a budget, the implications of not setting a lawful budget, together with the Personal Liability that may arise for members individually.
Whether all 40 Isle of Wight councillors read the advice in full is yet to be seen. Based on evidence at previous meetings, some seem to rarely read the papers presented to them a week prior to the meetings.
Below is the legal advice from the Isle of Wight council issued to councillors
Risks associated with not setting or delaying setting Council tax
The Council has a legal duty to set a lawful budget by the 11 March (Local Government Finance Act 1992). A budget set at a later date is still a lawful budget.
Members jointly and severally (individually and collectively) have a fiduciary duty to Council Tax Payers – so they have a duty to facilitate rather than obstruct, the setting of a lawful budget, a process that requires flexibility and compromise. This duty extends to avoiding steps that would result in loss of revenue or failure to deliver services.
Aside from the legal obligation, members have the moral and democratic obligation to set the budget on behalf of the people who elected them. The budget proposals contain a series of options, from which it is possible, as advised by the s.151 officer, to set a lawful budget. In addition, it is open to members, where the options before them are not options they wish to agree, to identify and bring forward other options.
Failure to set a lawful budget in time will lead to loss of revenue – through not collecting council tax – both for the council and the precepting authorities such as the police and Town/Parish councils, significant additional administrative costs as well as reputational damage.
Financial implications will arise because regardless of any delay in setting the council tax, the council has to pay the monies due to the precepting authorities whether or not it collects any Council tax, has a legal duty to provide a range of statutory services eg children’s services and is not absolved from its duty because of the late setting of the tax.
A significant concern is that should there be a delay in the setting of the budget resulting in the 151 officer issuing a s114 Report (a formal report of the Chief Finance Officer which must be considered at a formal meeting within 21 days of issue) the council is prohibited from the date of the report from pursuing the course of conduct in the report, or – where the council would have insufficient resources to meet expenditure, from entering into any new agreement which may involve incurring expenditure. Existing contractual obligations can be met – but as an authority with significant demand from older people – this could impact on any new service users. It will also impact upon any proposals to enter into new financial arrangements – eg contracts for services and supplies, employees etc.
Ultimately if a lawful budget is not set, even after a s.114 report, intervention from the Secretary of State under s.15 Local Government Act 1999 may arise although it is unlikely that this would result in the Secretary of State setting a budget immediately – rather a direction would be given for the council – ie members, to do so.
Action could also be taken by the council’s external Auditor. The Auditor has the power to issue an advisory note – which operates as a prohibition – the auditor can look to the council for all expenses he incurs in this process, and the notice will prevent the disposal or acquisition of any property – regardless of value. Having issued an advisory note, application can be made to the High Court by the auditor. The auditor can also apply to the High Court for Judicial Review in relation to any decision of the council which it believes would have an effect on the accounts. Such acts would clearly affect the reputation of the council.
The s.151 officer does not have the power to actually set the budget.
Failure to set a lawful budget may give rise to personal liability to individual members for misfeasance or misconduct in public office, negligence or breach of statutory duty.
Code of Conduct for Members
Members have an active duty to ensure that the Council sets a lawful budget. Voting against proposals repeatedly, knowing that the result means no lawful budget, is incompatible with the Members’ obligations under the Code as it is bound to bring the council into disrepute.
Personal Liability
Personal liability may arise as explained below in relation to any individual member whose wilful misconduct is found to have caused loss to the Council. Such liability would depend upon the exact role played by the member and the seriousness of the loss.
Misfeasance in public office
Misfeasance in public office is an action against a holder of public office – this covers a range of people including members/councillors. It provides a remedy for persons who are injured by the actions of a public officer who has exercised his powers in bad faith/improperly.
Misfeasance in public office may arise where a member/councillor, exercising powers as a public officer, has acted with malice or in bad faith, being aware of the risk of such injury, without an honest belief that this conduct was lawful. That conduct must have caused the claimant material injury or damage of a sort foreseen by the defendant – ie the member must have actually foreseen that his conduct would probably cause damage of the sort which has been suffered by the claimant. Such damage could arise from an inability to secure services or complete a contractual obligation due to no lawful budget being set.
A claim for misfeasance in public office may be founded on an omission as well as an act. The omission must be deliberate and conscious in order to give rise to liability. There must be a duty to do the act in question. As is set out above, the council has a legal duty to set a lawful budget so a failure to do so will amount to an omission that could be said to be deliberate and conscious.
An action for misfeasance in public office, if proved may result in an order for damages which may include damage to reputation, loss of employment or other economic loss.
Misconduct in Public Office
There are similarities between the tort of misfeasance in public office and the criminal offence of misconduct in public office. With misconduct, the behaviour must be serious enough to amount to an abuse of the public’s trust in the office holder where the misconduct complained of is calculated to injure the public interest, without reasonable excuse or justification. The threshold is higher than for misfeasance in public office.
What is ‘Wilful’
‘Wilful’ can be defined as ‘deliberately doing something which is wrong knowing it to be wrong or with reckless indifference as to whether it is wrong or not’.
Clearly for a claim to arise there would need to be deliberate or reckless acts such as a persistent failure to facilitate the setting of a lawful budget. So the longer the process is delayed and a budget is not set, the more likely that liability may arise.
Liability in negligence and or breach of statutory duty.
It is potentially possible, for a Member to be liable in negligence and or breach of statutory duty. In order to succeed, a claim would need to show that what the Members were doing was deliberate or reckless and involves persistent failure to facilitate the setting of a lawful budget before it attracts liability of the sort referred to above. The longer the setting of a budget is delayed, and the more repeatedly the member “blocks” the setting of a lawful budget, the more likely the liability will arise.
Further reading on misconduct in public office can be found on the CPS Website.
Background
Cllr Bacon’s reference to personal liability came up during the debate over using some of the council’s Reserves to cover the cost of services, following cuts in funding from the Government (the IWC are expecting to hear this week whether their call for more money have been answered).
Criminal and civil financial liability
At the 20th January meeting, Cllr Bacon told members,
“If we don’t use £4m this year from reserves when we could, we are failing to set a budget when we could set a budget and as was pointed out to the budget group and the briefing notes that went out yesterday, that’s potentially personal liability for members – criminal and civil financial liability – if we do not set a budget when we could and that is why that £4m reserves is absolutely essential and why the recommendation in the paper has this in the original paper.
“Members should just think very clearly about what they are saying in terms of reserves and should be thinking about it, because at the end of the day, we could be personally liable if we make this council fail when we don’t have to.”
Liability challenged
Cllr Bacon’s reference to criminal liability was challenged by Cllr Dave Stewart, leader of the Conservative group of councillors.
He was accused of ‘scaremongering’.
Impact of not setting a budget
Cllr Bacon went on to explain that if a budget is not set, it would mean no council tax could be collected.
As over £66m is collected through council tax, the impact that would have on statutory services such as adult social care and children’s services doesn’t need further detail.
