LEGAL MATTERS - WORKING WITH DISCRETIONARY EXPENDITURE POWERS

With the increasing pressures on principal authorities and the changing priorities of the existing and future unitary authorities, the funding of projects that benefit the local community will become more important. In many cases they will provide a lifeline to voluntary sector projects.
This may mean that local councils will have to scrutinise and prioritise projects and demands for grant funding to an extent that has not been necessary before. The adoption of a formal policy on grant and similar funding is therefore essential. A request that does not entirely meet the formal policy criteria may be considered; it is still necessary for it to comply with the requirements of the adopted policy. Generally, there should not be a commitment to make funds available other than on a yearly basis.
For most local councils the principal power for discretionary expenditure remains s137 of the Local Government Act 1972.
This section authorises a local council to spend money (subject to a statutory limit) for the direct benefit of its area, or part of its area, or all or some of its inhabitants.
Section 137 cannot be used where the local council has the General Power of Competence, or where the local council has an unrestricted specific statutory power to spend money. For example, under section 124 of the Local Government Act 1972, which empowers a local council to acquire land by agreement for a statutory function, such as allotments, or for the benefit, improvement or development of the local council area.
If there is a statutory limitation or restriction on a specific power, s137 cannot be used to evade the limitation or condition. An example of a limitation is the fact that under section 13 of the Local Government Act 2013 a local council cannot create a mortgage or charge on its property as security for a loan. Funds obtained from the Public Works Lending Board are not charged on a particular property belonging to the local council, but are a general charge on the council tax received by the local council.
A further example is the restriction in section 2 (1) of the Local Government Act 1986 prohibiting a local council from publishing material that supports a political party.
Expenditure cannot be incurred on publicity for a public or voluntary body unless the expenditure is incidental to the main purpose for which the local council is giving assistance. Expenditure on publicity that the local council provides to its area is governed by section 142 of the Local Government Act 1972.
Before incurring expenditure under s137, the local council must be satisfied that there is a direct benefit to the area, or part of the area, or to some or all of the inhabitants. The power cannot be used for the benefit of a single individual. Assistance to an individual can usually be provided by giving a donation to a charity or voluntary organisation to which the individual belongs, or by use of the chairman’s allowance.
The direct benefit to the area must be commensurate with the expenditure incurred by the local council. This would prevent expenditure of an excessive amount on a very narrow object which benefits, or which is likely to benefit only a small number of people.
Contributions must be made under s137 to charities and not for profit organisations that provide a public service, but only in furtherance of its work in the United Kingdom. Contributions to UK charities are not required to bring direct benefit to the council’s area or its inhabitants.
The amount that a local council can spend under s137 in one financial year is a prescribed sum per head of the ‘relevant population’. This expression is defined as the number of persons on the electoral roll for the local council on 1 April in each year.
The maximum amount per elector for 2025/2026 is £11.10
The original amount was calculated in accordance with Schedule 12B of the Local Government Act 1972 and set at £5 per elector in 2004. The amount for subsequent years is calculated by reference to the movement of the Retail Prices Index. The maximum amount per elector for the year 2025/2026 is £11.10.
The local council must specifically resolve to authorise expenditure under s137 and it is necessary to maintain a separate account for expenditure incurred under the section. The resolution should record that the expenditure is for the benefit of the area and if the benefit is not commensurate with the expenditure, that expenditure can be challenged by the auditor or by an elector at audit.
Under s137A of the Local Government Act 1972 a local council that gives financial assistance by way of grant or loan in an amount exceeding £2,000 in England, to a voluntary body, a charity or not for profit public service body must require the recipient to provide a written statement of how the money has been spent within 12 months of receipt. In practice most local councils require production of the accounts of an organisation before the grant is made and after it is received, whatever the amount. The local council will impose conditions on the grant, including the right to recover if it is not expended in accordance with the terms of the grant.
An increasing number of local councils have adopted the General Power of Competence. Originally this only applied to England but the Power can now be adopted by community councils in Wales in accordance with legislation passed by the Senedd. The Power in England derives from Part 1 of the Localism Act 2011.
The General Power enables an eligible local council to do anything that generally an individual can do. The power can generally be exercised in any way whatever, including in the UK or elsewhere, for commercial purposes with or without charge and for, or otherwise than for, the benefit of the local council, its area or persons resident or present in the area.
Notwithstanding the wide power, local councils are required to act in accordance with statutory limitations or restrictions. If a limitation applies to existing powers they will also apply to the General Power. This also applies to any express prohibitions, restrictions and limitations within primary or secondary legislation. Restrictions imposed after 2011 will only restrict the General Power if they are expressed to do so.
If a local council does things for a commercial purpose through the exercise of the General Power, it must do them through a limited company or a similar structure. The General Power does not enable the local council to delegate the performance of its functions to a third party other than by arrangement with a principal authority.
There has been no exercise of this power to date
The Secretary of State has power to remove or change statutory provisions that prevent or restrict the use of the General Power or amend or repeal any of its provisions. There has been no exercise of this power to date. The General Power of Competence is available to all principal authorities but only to eligible local councils.
To be eligible a local council must have, at the time that the Power is adopted, two thirds of its members elected either at an ordinary election or by-election, have a clerk who has a qualification of a Certificate in Local Council Administration or an equivalent.
The local council must specifically resolve to adopt the General Power and once adopted it will continue to be able to exercise the power until the next annual meeting after an ordinary election. If it remains eligible at that time it can readopt the General Power. If it is not eligible, expenditure or projects previously approved under the Power can continue but no new expenditure or projects can commence using the General Power. The local council will have to rely on s137 expenditure.
In England the promotion of well-being provisions was abolished from the time that the General Power was introduced. In Wales all community councils had the power to promote the improvement of the economic, social and environmental well-being of their area or community. This power can be used to incur expenditure, to give financial assistance to any person or enter into arrangements with any person. It can also co-ordinate or facilitate the activities of any person or exercise functions on behalf of that person or provide staff, goods services or accommodation to any person. Each area of a principal authority in Wales was required to prepare well-being plans for their area. This power is still applicable to community councils who are not eligible to adopt the General Power of Competence.
Since 2010 local councils have been entitled to a proportion of the Community Infrastructure Levy imposed and collected by the planning authority under the terms of the Planning Act 2008. It is anticipated that this levy will shortly be replaced by an infrastructure levy, the exact terms of which are awaited.
The amount to which the local council is entitled depends upon whether there is an officially adopted Neighbourhood Plan. If there is such a plan the local council is entitled to 25% of the levy collected by the planning authority, otherwise the percentage is 15%.
The intention of the levy is to support development in the area, and increase the capacity of the existing infrastructure. Local councils are encouraged to co-operate to fund projects which can benefit more than one community. There is no restriction on the projects provided that they relate to infrastructure. It is not intended to be a general fund for any purpose. Funds have to be spent for this purpose within five years of receipt and there are clawback provisions in the event of expenditure on projects other than relating to infrastructure. A number of planning authorities have exercised their right to query expenditure and reclaim monies that have been expended on projects that are not directly referable to infrastructure.
Wellers Law is based in Surrey and the firm has considerable experience, gained over many years, in acting for local councils. It advises local councils throughout England and Wales. The firm has a team of lawyers experienced in acting for local councils and provides a legal advice service for the Society of Local Council Clerks and a number of county associations. Training is also provided in specialised areas, such as charities and common land and village greens, allotments and burial grounds. Roger is the editor of Arnold Baker on Local Council Administration and The Clerks’ Manual. www.wellerslawgroup.com

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This is an updated version of the article written by Paul Clayden and published in Clerks and Councils Direct in July 2019.
Written by Roger Taylor, consultant solicitor, Wellers
As appeared in Clerks & Councils Direct, September 2025
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