House of Commons - Devolution in England: the case for local government - Communities and Local Government Committee

Devolution in England: the case for local government - Communities and Local Government Committee Contents

4 Practicalities of introducing devolution

The speed and spread of fiscal devolution

82. An incremental approach will stand the best chance of success with the Government. We referred at paragraph 70 to the Government's test of whether further decentralisation supported deficit reduction. The Minister of State for Cabinet Office (Cities and Constitution), Greg Clark MP, said that the Treasury would not agree to general fiscal devolution but might be persuaded to move incrementally and to adopt proposals in particular areas. He said progress on devolution had been held back in the past by concerns that, "'It is fine for some places, but is everyone ready to take on these powers?'"[156] Others were more explicit, telling us that any attempt at blanket fiscal devolution risked derailing the whole process. Professor Travers warned that a proposal that the whole country adopt such reforms in one go would "generate strong opposition within central government".[157] He added that, "if we ask for the same localisation or decentralisation for all of England at once, we are less likely to get it than if we ask for one or two places".[158] The idea of devolution at different speeds, with Government incentive leading to local initiatives, has been a feature of recent Government policymaking. The Parliamentary Under-Secretary of State for Communities and Local Government, Brandon Lewis MP, said that:

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He also pointed to the advantages of local authorities moving at a different pace. He told us that areas moving forward with local growth funds and City Deals drove people in other areas to ask their elected representatives,

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Sir Merrick Cockell, Chairman of the Local Government Association, explained: "we are used to an imperfectly designed and imperfectly operating set of local government structures and we can cope well with that".[161]

83. A system that develops in line with the features we have set out in the previous chapter is likely to mean that most local authorities will take some time to devise and bring forward proposals for fiscal devolution.

84. We conclude that in the short-term at least fiscal devolution encompassing a range of taxes and enhanced borrowing powers is likely to be implemented successfully by a small group of local authorities, particularly those that have already secured decentralisation packages or shown a strong interest in fiscal devolution, such as London and some Core Cities. This would be nothing new: local government in England has for a long time been structured asymmetrically and developed at different speeds. An incremental approach has more chance of gaining acceptance from the Treasury, which has a tendency to be cautious on fiscal matters. It would also allow those who want to make progress to move forward faster.

Government incentive

85. The Core Cities, the County Councils Network (CCN) and Key Cities were content to see fiscal devolution start in other areas as long as there was a guarantee of their being able to join the process within an agreed timescale. Tom Riordan, chief executive of Leeds City Council, who also appeared on behalf of Core Cities, told us that if fiscal devolution was offered first to London, he would expect Core Cities' political leaders to be pressing strongly for it themselves, too.[162] Cllr David Hodge, chair of CCN, said "So long as we were given that assurance that we were going to get those powers then I think I would be quite happy with that."[163] Cllr Peter Box from the Key Cities Group agreed but said that it was "not acceptable to say that it would happen in certain areas and not the rest". Instead, he envisaged the devolution of different powers to individual cities, to county areas and to combined authorities, depending on what suited local areas.[164]

86. Witnesses told us that central Government needed to put in place a programme of devolution which would allow those ahead of the pack to move on while giving assurance to those areas wishing to follow in their path. To that end several witnesses suggested a framework—or roadmap—for devolution. Core Cities said:

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IPPR North said in its submission:

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This model has been used in other countries. France and Japan looked at the powers that could be devolved to different levels of government at different times over a 10-year period. Expanding on this, Ed Cox, the director of IPPR North, said:

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87. Ministers were uneasy about the idea of a "roadmap". Brandon Lewis had reservations about prescribing a timeline, but he added that:

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This approach was not out of step with others. Sir Merrick Cockell told us:

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88. While we are clear that the decision whether or not to seek fiscal devolution must rest with local authorities, the Government has a crucial role in facilitating the development of the arrangements, not least in respect of the redistribution considerations discussed earlier. Ministers should, through negotiation with local authorities, expand the range of powers available to all levels of local government as part of a framework that ultimately includes fiscal devolution. As part of a commitment to create balanced opportunities for growth, the Government should in this framework spell out the range of powers that would be available to different levels of local government. For large and small cities and counties a framework would provide an incentive to make plans for enhanced collaboration and, if they wished, to pursue more meaningful, fiscal devolution in the future. The framework should set out what powers could be available to local authorities over the next 10 years.

89. We envisage that the framework as well as setting out a range of devolutionary powers would contain terms and conditions that the local authorities seeking substantial fiscal powers would have to meet. These include an agreed approach to equalisation and redistribution, and being able to demonstrate that the devolved area functions as an economic entity, has a strategic approach to planning and delivery and includes good governance.

Enhanced powers for individual authorities

90. We were told that some authorities might want more control over local spending and public services, but not large-scale fiscal devolution. Alexandra Jones from Centre for Cities told us that devolution with a menu of options "would reflect better the different needs of different places".[170] The Key Cities Group recommended that "government act in a corporate and strategic manner by developing a cross government menu of significant funding streams and powers that local areas could adopt should they meet local needs".[171] The Group referred to some of the specific powers it would like, including:

· place-based budgets;

· devolving the Work programme to cities;

· single housing plans;

· reforms to the New Homes Bonus; and

· tax increment financing.[172]

Cllr Peter Box, from Key Cities, added that "in the first 12 months" of any such devolution programme, they were also calling for devolution of sustainable communities programmes and the localisation of probation services.[173]

91. For all local authorities, the framework should make provision for local control over spending on a wider range of services and for them to expand or change the range of services decentralised over time. This arrangement would reassure those areas not wishing to proceed with substantial fiscal devolution that tailored powers—in particular, over how money was spent locally—would be available. Decentralised powers, such as the Work programme, should be accompanied by an appropriate amount of decentralised spending to fund such initiatives.

92. Newcastle University said that

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The LGA urged "reform [of] the Victorian departmental structures, developing a structure that promotes a focus on public service outcomes and joint working between public services".[175] Brandon Lewis responded that over the past four years "there has been a phenomenal speed of movement there (in Government), which is a credit to all of the Departments that have been involved".[176] Greg Clark added that: "We would not have concluded any of these City Deals without colleagues in other Departments—officials and Ministers—agreeing to give up the powers and to back a good deal."[177]

93. Any process of decentralisation that links to budgets allocated to places rather than policies will require further changes in the attitude and organisation of central Government. Its structures need to mirror more readily those being developed in local government, so that budgets can be developed based on the spending priorities of local people, not national Departments. The framework needs to be able to assist individual local authorities which are primarily seeking decentralisation of spending programmes such as the Work programme with, if necessary, an option for limited fiscal devolution allowing the authority to raise low-yield local taxes, such as on landfill or tourism.

Enhancing the role of collaborating authorities

94. Combined authorities were established in 2011 in Greater Manchester and in April 2014 in West Yorkshire, South Yorkshire and the Liverpool city region. Each process had its origins in the local authorities in those areas taking the initiative and deciding to ask Government to approve their collaborative working in specific policy areas.[178] The legislation governing the establishment of combined authorities allows counties to combine with such unitary councils.[179] The CCN noted that

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The Centre for Cities has recently put forward the idea of a "strategic county". In self-contained functional economic areas, with two tiers of local authority, the county would, subject to local agreement, coordinate housing, transport, regeneration and skills budgets and strategies.[181] Sir Merrick Cockell suggested that enhanced powers for more categories of authorities to combine and collaborate would be an incentive:

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ENHANCED POWERS

95. Sheffield City Council urged the Government to address the inability of combined authorities to borrow to fund non-transport related investments. It said that despite robust governance arrangements it had few resources to invest in growth and, therefore, could not achieve its ambitions.[183] Leeds City Council said successful combined authorities should be given council tax precepting powers.[184] As an overarching enhancement, the Centre for Cities has suggested combined authorities should have similar powers to the Greater London Authority, including powers to: levy and raise additional funds for economic growth projects, such as a business rate supplement and community infrastructure levy; intervene in strategic planning issues; and control Homes and Communities Agency assets.[185] IPPR suggested place-based budgets and skills funding should be available to combined authorities after 2015. As we noted at paragraph 90, Key Cities suggested such budgets should be available to individual authorities, demonstrating how the level to which powers are devolved will have to be locally agreed. IPPR added that building on the principle of the Earn Back scheme in Manchester, combined authorities should also be able to finance investment in infrastructure, employment and skills based upon the savings from increasing employment and the proceeds of GVA growth.[186] Professor Andy Pike, from Newcastle University, told us:

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96. Within existing legislation, the Localism Act 2011 allows the transfer of any public function from other bodies, or from Ministers, to 'permitted bodies', a designation which includes combined authorities. It would therefore be possible for further powers to be devolved to combined authorities by statutory instrument without recourse to primary legislation.[188]

97. We recommend that, as part of any framework for devolution of further powers to all local authorities, including fiscal devolution initially to a limited number, the Government enhance the powers available to combined authorities. This would align their powers more closely with those available to the Greater London Authority, give them a greater strategic role and enable them to prepare, if they wish, for more significant fiscal devolution in the future. These enhancements would include: control over place-based budgets; powers to borrow for non-transport purposes, to become precepting authorities and to finance investment based upon the proceeds of GVA growth; and strategic housing and planning responsibilities, including the power to oversee local authorities' duty to co-operate. (We would expect to address local authorities' duty to co-operate in planning in our current inquiry into the operation of the National Planning Policy Framework.)

CHANGES TO MEMBERSHIP REGULATIONS

98. On the regulations governing the creation of combined authorities, City of York Council said that:

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During our visit to Lyon, we heard how its combined authority, la communauté urbaine de Grand Lyon, included municipal authorities with which it did not share a geographical border. Brandon Lewis told the House recently that a legislative reform order was expected to be introduced in the summer to allow authorities that do not have contiguous boundaries to join combined authorities.[190] We also heard that while district councils can join combined authorities they do not have full voting rights. Combined authorities are responsible for transport, but in two-tier areas district councils are not transport authorities, county councils are, so the district cannot exercise the range of powers available to other combined authority members.[191] Sir Merrick Cockell said it was in the Government's power to make the situation easier for combined authorities.[192] Brandon Lewis told us there were no plans to change that policy, but if areas had a workable proposal he would, in the interests of looking at what was right for the locality, consider it on its merits.[193]

99. We recommend that the Government bring forward as soon as possible its planned legislative reform order, to allow authorities that do not have contiguous boundaries to join combined authorities. Similarly, Government should bring forward legislation, to allow a district or groups of districts that form part of a locally agreed functional economic area to have full voting rights. The full powers of the combined authority should then extend to cover such districts.

Fiscal agreements

100. In the 2013 Autumn Statement the Government encouraged the submission of public service reform proposals made by local enterprise partnerships as part of the Growth Deals process.[194] On 31 March Greg Clark told us:

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On the same day London's Local Enterprise Panel did just that. It published its Growth Deal proposals, in which it asked for certain funds from the Government's Single Local Growth Fund and reiterated the London Finance Commission's request for fiscal devolution: full control of property taxes and a relaxation of borrowing restrictions. In return for this, it said it would invest in the capital's infrastructure and introduce employment, skills and housing programmes. It also said this would offer central Government

· an ability to focus on national priorities rather than be distracted by local and regional issues;

· higher overall growth with continued receipt of the majority of the tax base;

· fewer spending negotiations with regional and local government; and

· a more mature dialogue between central and local government regarding the latter's strategic priorities, rather than negotiations over minutiae.[196]

A comprehensive agreement based on London's proposed growth deal might be one way forward for authorities.

101. The London approach is not without international precedent, either. European governments, according to Core Cities, have been moving towards more long-term contractual relationships between national and local government to deliver improved urban economic performance.[197] And Newcastle University said,

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102. Local and central Government should devise a means of enabling those authorities covering functional economic areas that wish to assume significant fiscal devolution to enter into negotiations with the Government. The London Enterprise Panel has made such a proposal within the existing mechanism of the Government's Growth Deals. If the Growth Deal route is feasible, those local authorities that wish to should take the initiative and, subject to an agreed equalisation and redistribution mechanism, make their own proposals within the framework arrangement we urge the Government to develop and adopt.

LEGISLATION AND TIMETABLE FOR DEVISING THE FRAMEWORK

103. IPPR suggested legislation might be required in England for what it called "big bang city deals".[199] As we noted in the previous section, the Localism Act 2011 might provide a vehicle for transferring powers to a small group of areas in England.[200] The matter was raised with us and should be clarified on the basis of maximum powers that are likely to be devolved.

104. In responding to our report we ask the Government to confirm whether the Growth Deal route with, if necessary, the exercise of provisions in the Localism Act 2011 to transfer powers is a vehicle for comprehensive fiscal devolution. If this is the case, we would expect that by this route similar powers should be made available to further authorities in due course. If it is not, we recommend that the Government bring forward primary legislation to enable fiscal agreements to be negotiated. In addition, we recommend that within six months after the next general election the Government and local authorities agree and set out the arrangements by which certain areas might secure a long-term fiscal agreement.

AGREEING THE TERMS OF FISCAL AGREEMENTS

105. As we have noted, witnesses told us that the City Deal process did not feel like decentralisation, given the amount of bureaucracy involved. They said it required teams to prove each proposition and haggle with an "oligarchic patron".[201] Ed Cox from IPPR North, referring to the criteria for fiscal devolution, said that this should not involve

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According to research cited by Newcastle University, Contrats de Ville were used in France to "replace traditional hierarchical relationships with contracts based on negotiation".[203] Some in local authorities have argued they should not have to have "proved their worth" to central Government but, instead, should be given further powers and judged by their electorate.[204] The Minister Greg Clark told us, however, that Government could not just accept local proposals at face value. Rather it had to conduct due diligence, negotiate and "get the best possible value".[205]

106. Given the evidence we received about the city deals process being one-sided and bureaucratic, we considered how any impasse in reaching a fiscal agreement might be dealt with. In oral evidence the idea of a local government finance "Office for Budget Responsibility" was put to us. The office, it was suggested by Ed Cox from IPPR North, could offer information and advice in relation to resetting any system of equalisation and redistribution introduced under fiscal devolution.[206] Its remit might extend to include consideration of fiscal agreements themselves.

107. Central Government rightly has to ensure any introduction of fiscal devolution is done effectively and efficiently. Where an authority or group of authorities demonstrate that they meet the principles we outlined in the previous chapter and come within the framework we set out above, there should be a presumption in favour of fiscal devolution. In our view it is essential that the process develops on from City Deals which, despite their considerable benefits, have been characterised as bureaucratic, placing local government in the unequal position of supplicant.

108. To assist the development of the process we make two recommendations. First, where agreement between central Government and local authorities cannot be reached, there should be a process of impartial evaluation. We see a role for the independent body, described earlier in our report, to advise. Second, we recommend that local government examine whether a small group of strategic authorities, selected by their peers and with an agreed approach based on the principles we have outlined, present to the Government joined-up proposals for fiscal devolution to several areas in one go. In our view this would provide a collaborative approach, develop the framework and act as a way forward for authorities in future.

WIDER ISSUES: LOCAL GOVERNMENT REORGANISATION AND CONSTITUTIONAL CHANGES

109. Comprehensive fiscal devolution raises broader issues relating to the reorganisation of local government finance and the codification of the relationship between local and central Government. We have, however, not examined these in this report for two reasons. First, neither is a precondition for fiscal devolution. The Minister, Greg Clark, observed:

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Core Cities pointed out devolution of the Work Programme, business rates and more significant devolution "could happen under the current structures".[208] Second, fiscal devolution will create opportunities to develop a new relationship between central and local government which could inform both reorganisation and codification.

110. Professor Andy Pike of Newcastle University pointed out that devolution had taken place "asymmetrically" in the UK already, with Scotland, Wales and Northern Ireland, London and the English regions forming a hierarchy of decentralisation: further decentralisation could unfold in a similarly uneven way.[209]

111. Wider questions about the role and place of local government in our constitutional settlement should not delay fiscal devolution. But implementation of this significant change will require appraisal. We therefore recommend that towards the end of the next Parliament a comprehensive assessment of the operation of any fiscal devolution and decentralisation take place. This assessment might be a starting point for a revised constitutional settlement. On this issue we welcome the Political and Constitutional Reform Committee's existing work, which we expect will inform any such revision.[210]

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157 Professor Tony Travers (FDC0033) p 3 Back

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165 Core Cities (FDC0008) para 3.6 Back

166 IPPR North (FDC0020) pp 4, 5 Back

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