Last Call: Max Caller on council governance and finances
Max Caller looks back on his career in local government and considers why more councils than ever are experiencing financial failure.
In his more than 50 years of service, Max Caller CBE has seen and presided over a lot of change in local government. He has been involved with failing councils and best-value inspections from the very beginning, starting with the turnaround of Hackney Council, the first authority to be subject to Directions.
Perhaps most prominently, he led a series of high-profile best-value inspections at Northamptonshire County Council, Liverpool City Council and Slough Borough Council – and was called in to rapidly review Nottingham City Council in 2020 following the collapse of Robin Hood Energy.
He has also been on the decision-making side of the equation, having served as chief executive of Hackney Council and Barnet Council. At Hackney, he garnered praise for overseeing its transition from being subject to the Best Value Direction scheme to one of the fastest-improving councils at the time.
In March 2023, Caller announced that he was stepping back from public life. So, looking back on more than five decades of service – and amid a worrying rise in councils issuing section 114 notices – what does Caller think about the governance and finance issues that councils now face?
What is to blame for the uptick in s114 notices?
Councils “going bust” has become a less than isolated occurrence, with Birmingham issuing a section 114 notice just last week (6 August).
The West Midlands council, which is the largest in Europe, became the seventh local authority to announce effective bankruptcy since 2018 and the second this year after Woking Borough Council issued its own notice in June.
Woking announced it had racked up £1.8 billion in debt and had just £16 million in core funding to cover its bills, making it the most indebted council relative to size in the country.
Council documents showed that investments in a shopping centre and an ambitious housing and regeneration project were primarily responsible for the debt. On its face, this mirrored issues seen at Croydon, Slough, and Thurrock, but the circumstances behind every section 114 notice are unique.
“Every council is different, and every council is the same. They got there in different ways, but in every instance, there were significant weaknesses in governance,” Caller says.
Caller has a lot to say about what went wrong at the councils he inspected.
He describes his process for conducting statutory reviews, which begins with an information request, setting out all the documentation he wishes to see. Caller spends the first few weeks just reading the documents, looking at “what’s there and what’s not there”.
“In general,” he says, “it’s the stuff they haven’t got which tells you that they’re going to be in trouble.”
At well-functioning authorities, Caller typically finds good reporting mechanisms and scrutiny and an environment in which staff are “not afraid to say the emperor has no clothes”.
But where things are going wrong, he says he often sees poor reporting and a lack of communication between officers and members. He even notes that in some cases, “officers, having been given authority to do something, have gone on to do something completely different and never reported back”.
“So let’s give you a couple of examples because I think that illustrates it,” Caller says.
Explaining investments made by Slough, which issued a section 114 notice in 2021 in the face of more than £700 million in debt, Caller says that the council’s treasury management policy “was not a bad document,” but it was not followed.
The document set out the rules for investments in commercial undertakings and detailed the rate of return. “But they didn’t do it,” Caller says, “they did something completely different.”
“One, they couldn’t calculate the sums right. But even with the sums they calculated, it didn’t comply with their treasury management system. And no one – the section 151 officer, the monitoring Officer or the chief executive – no one said, ‘Hang on, chaps, this is wrong. We can’t do this’. They just carried on regardless.”
Slough purchased industrial land in 2021 – referred to as the Akzo Nobel site in its best value report – with a view to building more than 1,000 homes on the site. But after purchasing the site, the council decided it could not fund the development due to its massive debt.
Speaking about the decision, Caller says: “They didn’t have the money to buy it and do the development. They knew they didn’t have the money to buy it and do the development.
“Had they actually commenced it and entered into contracts, instead of being about 3/4 of a billion pounds overspent, they would have been £1.5 to £1.7 billion overspent, and there would have been no way back for them.”
“What they actually said in private was: ‘We know this. At the next meeting, which happens to be the budget meeting, our capital strategy will lay all this out’.”
But there was no such report, Caller notes.
“Where was the monitoring officer? Where was the section 151 officer?” he asks.
Keeping at arm’s-length
Beyond poor communication between officers and members, Caller notes that councils also encounter problems with their arm’s length companies.
“Local government is, in general, really bad about understanding the role of local authority-controlled companies,” he states.
They are not council departments by another name, he emphasises.
Describing his experience at Nottingham, he notes that the chair of the council’s now-dissolved energy company, Robin Hood Energy, also happened to be the chair of the local authority’s audit committee. This created a direct conflict of interest, Caller notes.
“What senior local government member needs to be told this?” he asks incredulously.
In Liverpool, there were similar problems with council-owned companies where the board members had “no understanding of what the role of the company was,” Caller adds.
“I notice this a lot in many places,” he notes.
Caller says that the statutory role of the company director is to ensure the company makes a profit.
“It’s not there to deliver Council policies,” he says. “There’s no point in having a council-controlled company if it is the same as the council.”
Overall, he finds that commercial sector companies operate within much stricter guidelines, noting that if a private company had a subsidiary and it wanted to borrow money from a holding company, a control process would be in place which set out whether it was getting its rate of return.
“I don’t notice much of the basics of commercial lending practice that you would see with local authority companies. Otherwise, you would never have borrowed the way Woking have done because someone would have said, how’s the company going to pay this back?”
What can be done to help?
So what can be done to avoid these situations? Caller thinks that part of the solution is to tackle poorly performing statutory officers.
Statutory officers are, he says, employed to “save members from themselves”.
“Your job is to say ‘yes, leader, I know you want to do this, but it’s unlawful. This is where I can get you to’, or ‘we can’t afford it’, Caller says, speaking about the role of the monitoring officer, section 151 officer and chief executive.
“And if you can’t do that, then perhaps you shouldn’t be doing the job, which is why I have said to Government explicitly in a number of reports that perhaps there needs to be some form of certification for people who go for these top jobs.”
In his second report as lead commissioner at Slough, Caller said the failures of the three statutory officers in relation to the acquisition of the Akzo Nobel site brought into question “the way in which local government as a whole ensures it appoints suitable individuals to fulfil these vital roles legislated for the protection of the integrity of each authority”.
“This goes far beyond any existing professional qualification and in Commissioners’ view needs to be reviewed at the highest level,” the report added.
He says there’s a separate set of skills, experience and personal qualities that are necessary to be effective in the roles - qualities that should be backed up by qualifications.
“Because being the best accountant in the world doesn’t make you a star section 151 officer, and being the best lawyer in the world doesn’t make you a monitoring officer,” he notes.
A seat at the table
Yet even if you are a star monitoring officer, your position in the council structure can limit your effectiveness, Caller says.
In his independent governance review on Northumberland, Caller called for the local authority’s monitoring officer to be more prominent in the council structure, describing the position as a ‘third-tier role’ at the council.
Caller recalls that the monitoring officer was not at the corporate management team and was not typically involved at the top table. “So their ability to influence what was going on was very limited.”
This is an issue seen at a number of councils and in a number of councils where s114 notices have been issued, Thurrock being the most recent example.
Caller explains that in councils where the monitoring officer is a ‘third-tier’ role, the three statutory officers also often fail to meet to discuss statutory officer issues, creating an environment in which statutory officers do not have full oversight of member decisions.
Interim monitoring officers are also a problem, according to Caller. “When you have lots of interim appointments, that means that you don’t get a consistent approach,” he states.
Tower Hamlets and Northumberland had a series of interims, and Slough contracted out its monitoring officer to Harrow as part of their legal service, he recalls. Thurrock also had a string of monitoring officers, with five incumbents since 2017.
“If you have people who don’t have status and they’re interims, and they’re there for a short period, they’re doing no more than hold the fort. They are not looking at the long-term.
“And if you are not at the top table and you want the chief executive to change the way in which business is done, how do you get air time,” Caller asks.
He also remarks that the role of monitoring officer is often impeded by having to juggle their full-time job, which is typically head of legal service.
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An argument against remote meetings Caller’s divergent opinions do not stop at his thoughts on the Audit Commission and legislating to boost the prominence of the monitoring officer. He is also in disagreement with much of the sector over remote meetings. “I am really worried,” he says, talking about the prospect of allowing councils to conduct remote meetings as they did during the Covid-19 pandemic. “Lawyers in Local Government think this is a good thing, and the Association of Democratic Services Officers think it’s a good thing to have remote meetings,” Caller says. “I think it’s an absolute disaster, and I think that because in my experience watching remote meetings, you can’t get the challenge that you have with people being in the room.” Caller argues that with a serious piece of scrutiny work, where officers should be challenged about what they are doing, you should be in the room, around a table “where you can look them in the eye”. He recalls watching remote council meetings at Liverpool during the pandemic, where the council did not have the bandwidth to put all members up on the screen simultaneously. “So what did they do? They said you log on, and then you turn your microphone and your camera off unless you’re called upon to speak,” he says. “So the truth is, you don’t even need to be there. Once I’ve logged on, I could turn my camera microphone off. You can see I’m connected. You wouldn’t know if I could have gone out. I could be playing cards,” he argues. At Liverpool, speaking arrangements were pre-arranged, and the group whips voted every member in a block vote because it took too long to vote individually remotely. “How do you disqualify a member under remote meeting conditions if they are not there,” Caller asks. A councillor may have logged on, but you cannot verify that it is them, he argues. “What you know is that their name came up,” Caller says, “but you just don’t know they’re there. “So that meant the real business of the council meeting was a formality being done by the group leaders, the group whips and the mayor. “Where’s the democratic accountability in that,” Caller says. |
“I argued to Lawyers in Local Government when I spoke to them last that actually the MO is the full-time job, and if you do it properly, you haven’t got time to be anything else.
“It’s a serious, serious job. It’s not a bolt-on. It’s not an ‘I am chief executive, and I’m also the queen Swan upper’,” he jokes.
Embedding the legal team
Caller believes it is not just the monitoring officer that needs to be more involved in the decision-making process. Legal teams need to be more prominent too.
“Generally, lawyers are brought in too late to the process,” he states. “They’re not brought in as part of the policy formulation stage, they’re brought in when you’ve made your mind up, and now you want to find a way through.”
“Actually, I think local government lawyers do better when they’re much more embedded into what’s going on, and they’re part of policy formulation teams, and they have to think ‘so what’s going on here?’
One barrier, however, to embedding lawyers in this way is that many local authorities struggle with having the level of technical competence to have a full coverage legal service, Caller says.
A potential solution to this, he suggests, is for local authorities to strike cooperative arrangements with each other where each council takes responsibility for a particular specialist activity.
In this set-up, you may have one authority in the team that covers childcare – all the children’s legislation – that’s what they do, and they provide that service for everyone, Caller explains. “Someone else does property. Someone else does highways and so on, and so on.”
“Because one of the things that we noticed in Slough, where there was a children’s trust, was that the amount of stuff put to counsel was huge in terms of the budget impact,” he notes.
“Had they had better expertise in-house, they might have saved themselves a lot of money.”
In addition, he notes that it is difficult to train legal professionals in a stretched department. “If you’ve only got one of something, how do you know the person that you’ve got one of is actually good at what they do?”
How far should Government intervention go?
With the scale of liabilities that super-debt councils are facing, Government intervention is inevitable. But where should it stop?
Legislative solutions are being talked about across the sector, with many calling for new laws forcing local authorities to elevate the position of monitoring officer – the most prominent call being made by Tony McArdle in his Best Value inspection report on Thurrock.
McArdle recommended the Government consider amending the Accounts and Audit Regulations 2015 to require the head of paid service and the monitoring officer to be consulted by the section 151 officer on any determination on the financial control environment. He also called for an amendment to the 2015 regulations that would require the three statutory officers to be formally consulted on the contents of the annual governance statement.
But, Caller is less bullish about introducing legislative guardrails for councils.
“If we believe local government ought to be grown-ups, then you shouldn’t ask central government to legislate because they will – and then everyone is stuck with the same rules,” Caller says.
Good authorities already have regular meetings between the three statutory officers, he adds.
“Do I need a piece of legislation to do this? No, I’m a grown-up.
“Lawyers in Local Government said, ‘Well monitoring officers need more statutory protection’.”
But Caller disagrees. “If it’s wrong, statutory protection won’t protect you,” he comments.
Caller’s thoughts on the abolition of the Audit Commission also run somewhat contrary to prevailing opinion.
CIPFA’s chief executive, Rob Whiteman, recently described the abolition of the Audit Commission as a “complete disaster,” noting that “in the old days”, the auditors would have stopped councils from going bust like they are now.
But Caller thinks what really changed the business “was not the abolition of the Audit Commission itself, but the fact that many people in local government wanted to reduce the cost of external audit, and that’s been achieved at the expense of not having enough coverage and not having enough talent.”
The solution, he argues, is implementing the recommendations of the Redmond Review, “not going back into an Audit Commission.”
Whatever solution the Government adopts in the future, it is clear that councils continue to grapple with their finances in the present and that a steady flow of section 114 notices will persist in the near term.
But Caller says his work is done.
When asked if he plans on continuing to audit councils in the current climate, he notes: “I have been active in local government for over 50 years, the majority of this at the top, and have been involved with failing councils and Best Value from the very beginning.
“I have probably done enough.”
Adam Carey is a reporter at Local Government Lawyer.
