Ministry of Housing, Communities & Local Government
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Councils get urgent new powers to create mutual insurance companies

Councils are to be given new legislative powers to establish mutual insurance companies in light of the recent London Authorities Mutual Limited (LAML) court judgement, Local Government Minister Rosie Winterton announced today.

Urgent new amendments have been laid on the Local Democracy, Economic Development and Construction Bill that will give 'best value' authorities legislative power to join together to set up and participate in mutual insurance companies. The amendments will be debated at the report stage of the Bill set for 13 October 2009.

These steps follow the recent court ruling that Brent council did not have the necessary powers to set up LAML. Member councils participating in LAML claimed to have saved 15 per cent on insurance premiums as a result.

The Government is determined to support councils who are identifying new efficiencies and innovative ways to make taxpayers' money work harder than ever. In July, Communities Secretary John Denham consulted on introducing new legislation so councils could set up mutual insurance companies as an important way to deliver value for money.

The consultation responses showed that 82 per cent of respondents agreed with the proposal to introduce a mutual insurance power. The Strengthening Local Democracy consultation also asked if there were other beneficial activities were potentially outside the scope of existing powers. Government is still reviewing those responses and whether further action is necessary.

Rosie Winterton said:

"Councils have shown they are willing to make efficiency savings and are trying to think creatively about how achieve them. We will support them in their efforts to make every taxpayer's pound work even harder in the current economic climate.

Councils have shown that creating their own mutual insurance companies can deliver savings, but following the LAML judgement we have taken the necessary legislative steps to ensure they have the specific powers needed to do this."

Notes to editors

1. In 2007, 10 London local authorities set up the London Authorities Mutual Limited (LAML), a guaranteed indemnity mutual insurance company. The decision was reported to have been taken in response to a lack of competition in the local authority insurance market, with the intention to deliver significant efficiency savings. LAML went live on 1 April 2007 with two of the ten founding authorities, Brent LBC and Harrow LBC, placing their insurances. Legal action was taken by Risk Management Partners (RMP) which challenged whether Brent had the powers to participate in LAML and, for breach of the public procurement regulations. The High Court and subsequent Court of Appeal judgment ruled against Brent which has meant that local authorities could not undertake mutual insurance arrangements in line with those set up by LAML.

2. The Government has given councils a broad range of powers which can, and should, be used by them in relation to well-being, prudential borrowing, supporting shared services and trading and charging. However, given the specific issues raised by the Court of Appeal case on mutual insurance, combined with the strong support at consultation, the Government has proposed amendments to the Local Democracy, Economic Development and Construction Bill to provide specific new powers to enable councils to set up and participate in mutual insurance arrangements.

3. The mutual insurance powers will apply to best value authorities, which include English local authorities, National Park and Broads authorities, police and fire and rescue authorities, the London Fire and Emergency Planning Authority, joint waste disposal authorities, joint waste authorities, Integrated Transport Authorities, Transport for London, the London Development Agency, Welsh best value authorities, EPBs, and combined authorities.

4. The Strengthening Local Democracy consultation was published on 21 July 2009 and ran until 2 October 2009. It included a range of proposals to promote democratic renewal and strengthen the power and responsibility of local government. A full summary of responses to the consultation will be published later this year. However, in light of the proposed amendments to the LDEDC Bill a summary of the mutual insurance responses will be made available within the Impact Assessment to be published in relation to these amendments.

5. In response to the question "Should councils have a power to engage in mutual insurance arrangements?" 96 responses were received (as of 6 October 2009). Of those responses:

  • 82 per cent agreed with the proposed power (36per cent also stated that they wanted a power of general competence for councils);
  • 15 per cent were neither for or against; and
  • 3 per cent were opposed.

6. One supportive respondent said, 'we believe this to be a sensible step, and any joint working between council's like this, that increases efficiency and value for money should only be encouraged'. Others said, 'Whilst we support the introduction of a specific power to enable councils to engage in mutual insurance arrangements we also call for a power of competence for local government'. Another noted, 'extreme disappointment at the current barriers to continuing with Fire and Rescue Authority Mutual Insurance Initiative (FRAML) and would emphasise its view that powers to establish such bodies should be given to local authorities and fire and rescue authorities'.

7. The Department is still considering responses to the consultation about whether there are other similar arrangements - beyond mutual insurance - which councils believe could be beneficial but which are potentially out of scope of existing powers. Once they have been assessed alongside other evidence the Government will decide whether further action should be taken.

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