HFRA 16 09 2009 FRAML Update Appx A

CO/CH/Cllr RS/1458/FRAML JD

21 July 2009

The Rt Hon John Denham MP

Secretary of State for Communities and Local Government

Communities and Local Government

Eland House

Bressenden Place

LONDON

SW1E 5DU

Dear The Rt Hon John Denham

Powers of Combined Fire Authorities ... `Strengthening Local Democracy' ... mutual insurance arrangements

At a recent meeting of the Hampshire Fire and Rescue Authority we were updated on the sad saga and demise of the Fire and Rescue Authorities Mutual Limited (FRAML). The Authority instructed me to write to you to express our deep frustration that the powers granted to local authorities are now deemed insufficient to allow us to operate mutual insurance arrangements.

You will be very well aware of the plight of the London Authorities Mutual Limited (LAML) following the recent Court of Appeal decision. You may be less familiar with the problems FRAML faced. I'll sketch out the background.

After just over seven months of very successful operation (September 2007 to April 2008) FRAML had to cease providing insurance cover for its nine participating authorities - all of them happened to be combined fire and rescue authorities. This was because the original legal challenge in the High Court (RMP v Brent and others) determined that there are insufficient powers to operate an insurance mutual under Section 111 of the Local Government Act 1972 (the same section is repeated in the Fire and Rescue Services Act 2004). However, it was held in that judgement that the `wellbeing powers' (Local Government Act 2000) could be relied on. But, regrettably, the wellbeing powers do not apply to Combined Fire Authorities. That in itself continues to be a source of deep frustration and concern for CFAs.

Hampshire Fire and Rescue Authority

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Our Director of Corporate Services, David Howells, was Chairman of the Board of FRAML, so we have a pretty good appreciation of the extent of work that went into setting up FRAML in the first place. I know that the legal opinions obtained prior to set-up was encouraging. I've also been reminded that David took the precaution of writing to your predecessor to seek assurance that she was satisfied that sufficient powers existed and whether in the circumstances it might also be appropriate to grant specific powers (under Section 29 of the 2004 Act) to operate an insurance mutual. You may be aware that this section allows you to `...establish and maintain, or contribute to the establishment and maintenance of, any organisations considered appropriate for promoting the economy, efficiency and effectiveness of fire and rescue authorities.'

The response received on behalf of the Secretary of State was even more encouraging: "... I welcome the creation of an insurance mutual as a positive example of the Service delivering efficiencies through effective collaboration. It supports the intentions set out in the National Procurement Strategy for the Fire & Rescue Service as well as providing a positive example of innovative thinking to meet the Government's wider expectations for more efficient public services."

On the point of whether the Secretary of State might exercise her powers under Section 29, David was told that "... we do not believe there is any legal obstacle to do this ... [but] ... cannot envisage circumstances where we would consider doing so at this time. The mutual should ensure that It contributes to the establishment and maintenance of arrangements appropriate to promoting the economy, efficiency and effectiveness of Fire and Rescue Authorities." In that same response he was encouraged to promote the initiative to all authorities.

There is no doubt that together FRAML and LAML provided competition to the conventional insurance market place. Indeed, if the competition was not perceived as real and significant by the industry, there would not have been a legal challenge! FRAML clearly delivered substantial savings for its own members, and even the Audit Commission (in its report `Rising to the Challenge') seemed to acknowledge that FRAML's very existence meant that other fire and rescue authorities received much better deals through the conventional marketplace as a result. Now that the operation of insurance mutuals by local authorities are judged to be `ultra vires', we wonder how long it will be before insurance premiums start to increase again?

In the consultation paper `Strengthening Local Democracy' (launched today) I see that you refer to the LAML case - but, disappointingly, not to FRAML! While it is good to see that you ask the specific question: "Should councils have a power to engage in mutual insurance arrangements?" [and I think you can guess what our response will be], my real concern is that, once again, there's a risk that the powers of CFAs will be forgotten when you consider any extension of powers to local authorities.

Hampshire Fire and Rescue Authority

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Please can I have your assurance that CFAs will not be forgotten? Perhaps you might also consider exercising your powers under the Fire and Rescue Services Act to give CFAs specific powers to operate mutual insurance arrangements?

I'm more than happy to meet with you to discuss further if you feel that would help.

I look forward to hearing from you.

Yours sincerely

(Signed by Cllr Royston Smith)

Councillor Royston Smith

Chairman, Hampshire Fire and Rescue Authority