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The power to trade - uncertain times?
1 May 2009
The Trading Order allowing certain FRAs to trade in defined
activities expires in September 2009. Will it be replaced with a
broader permission to trade in all services and end years of
uncertainty?
The ability of fire and rescue authorities (FRAs) to trade (i.e.
charge for goods and services above cost recovery) has been a topic
of much debate in recent years and that debate is not over yet.
In line with the Government’s wish to see a more entrepreneurial
public sector, the Local Government Act 2003 gave the Secretary of
State the power to make an Order enabling “best value” authorities
to trade in any functions which they have a power, but not an
obligation to perform. This power was exercised in July 2004 but
the order made deliberately excluded FRAs.
Notwithstanding the lack of an express power, some FRAs had been
trading on a commercial basis to a limited extent for many years,
relying on the wide power given to them by the Fire Services Act
1947, but the repeal of that Act in October 2004 by the Fire
Services Act 2004 was clearly going to pose a problem for those
“trading FRAs”. In the absence of a replacement power their
commercial trading activities would have had to cease by 1 October
2004.
To avoid this problem, the Local Government (Best Value
Authorities)(Power to Trade)(England)(Amendment) Order 2004 (the
“Order”) came into force on 1 October 2004 enabling those FRAs who
were trading to continue to do so but only in those activities
which they had previously carried on and which were listed in the
schedule to the Order. However, the Order only allowed those FRA’s
to continue to trade if they did so through a company set up for
the purpose. The Order was transitional and will expire at midnight
on 29 September 2009.
What the law will be on 1 October 2009 is now part of a wider
consultation published in May 2009 (and closing on 28 July 2009) on
proposed changes to freedoms and flexibilities after the
introduction of Comprehensive Area Assessment in March 2009.
Details of the consultation can be found on the CLG website.
The options being considered are:
a) do nothing and let the trading powers cease;
b) extend the duration of the existing Order;
c) provide FRAs with powers to trade in any services which
they are not under a duty to provide.
The initial indication of the Department for Communities and
Local Government is that it prefers option C and believes that FRAs
should have the same access to trading powers as local
authorities.
The Future
Although it is not possible to say with certainty until the
consultation process is complete, it is unlikely that option A will
be chosen and the trading powers allowed to lapse. The questions in
the consultation are framed around whether the powers should be
maintained or extended and there was certainly no strong desire to
remove trading powers in 2007. The Government will be loathe to be
seen as depriving FRA’s of existing income streams which could
increase the burden on taxpayers, especially in the current
economic climate.
Those in business would like to see public sector trading
abilities curtailed and have argued they are anti-competitive, but
whilst the Government may take steps to avoid anti-competitive
behaviour (such as the requirement to use a company to trade) they
are highly unlikely to make a U-turn and curtail the ability of
authorities to raise revenue in entrepreneurial ways.
It is probably safe for FRAs to assume that they will be allowed
(or even encouraged) to trade going forward, whether in the current
defined activities or more widely.
Incorporating Trading Activities
Only 2 out of the 30 FRAs in England who are permitted to trade
are known to have set up a company to do so. This is probably down
to the perception that the costs, and complexity of setting up and
running a company were prohibitive and that it would only be
worthwhile if the trading operations provided a significant income
for the FRA involved.
In reality the process is likely to be more straightforward than
FRAs fear, however they will need to take legal advice on the
incorporation of the company and related issues (such as the
transfer of assets and employees, the duties of company directors
etc). Questions of funding and investment will have to be addressed
as well as the administrative requirements of running a private
company.
It looks like following the consultation process we will finally
get some certainty on the trading powers available to FRAs, but
whether more FRA’s will use those powers and go through the process
of forming a company will remain to be seen.
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