Tag: #devolution

A new dawn for local government has broken, has it not?

With money tight and many local authorities in a precarious financial state, ICAEW’s Alison Ring asks how the government can deliver on its commitment to devolution in the latest instalment of Room 151’s Municipal Missions Manifesto series.

A change in government. A commitment to devolve power. No money.

We all know that England is the most centralised of the advanced economies, but it is still difficult to comprehend just how strange it is that in a nation of 58 million people (out of a UK total of 69 million), the national government in Westminster should be so intimately involved in deciding which high streets in Nottinghamshire or Cornwall are improved, whether to fund public conveniences in Lancashire or Kent, or which parks in Herefordshire or Hertfordshire should get outdoor chess sets.

We might also wonder why we have a central government ministry dedicated to local government at all when in most countries it is the regions, states or provinces that are responsible for local authorities.

Here in the UK, there is a large bureaucracy devoted to overseeing hundreds of councils across England of many shapes and sizes, while another department decides whether to fund road schemes hundreds of miles from London that the ministers and civil servants making those decisions may never use.

Despite the extensive control exercised by Whitehall, successive governments have found that this does not translate into effective action on the ground, while local leaders are frustrated by excessive bureaucracy and limitations on how they can drive economic development and deliver public services locally and regionally. Labour has committed to devolving power in England, but without resolving many of the current problems in local and regional government it is going to be difficult to make devolution a practical possibility.

Step 1 – stabilise the system

The new government has already made two promising announcements that should go a small way to stabilising the existing system. Firstly, it has confirmed that local authorities will participate in rolling three-year spending reviews to be carried out every other year. This will make a huge difference by enabling budget holders to plan ahead more effectively, particularly on capital investments where projects can often span multiple financial years.

Secondly, a ministerial statement from local government minister Jim McMahon has confirmed that action will be taken to tackle the backlog of incomplete audits which is undermining local authority financial reporting and the assurance provided by external auditors. Although tempered by the knowledge that it will take several years to get local audits back on track, and that many of the longer-term fundamental issues identified by the Redmond Review remain unaddressed, this is a positive step forward.

While money is tight, if funds can be found then supporting local authorities under the most financial pressure should be a priority.

Step 2 – complete the roll out of a regional tier of government

A combination of gentle encouragement, financial incentives and some arm twisting has led to the establishment of 11 combined authorities led by regional ‘metro’ mayors mainly in so called ‘city-regions’. Together with the Greater London Authority this means that around half of the English population now have a regional mayor, but the corollary is that the other half do not.

While a large part of devolution is about empowering individual local authorities, gaps in the regional tier of government make it difficult for Whitehall to hand out some of its core functions. This is particularly the case for economic development where, for example, Greater Manchester’s mayor Andy Burnham is all too eager to grasp whatever powers he can and run with them, but there is no one to take the lead in the same way for most of the South West.

One way to fill in the gaps would be to accelerate the roll-out of combined authorities, while another would be to go for the ‘big bang’ approach adopted by France in 1986 when it created a new tier of regional government across Metropolitan France in one fell swoop.

Step 3 – separate out social care and SEND from funding for local public services

One of the biggest drivers of the financial challenges faced by many local authorities is the growing cost of welfare provision – principally adult social care and special educational needs and disabilities (SEND) support. The ‘reverse hypothecation’ caused by these two costs has had the effect of squeezing budgets for local public services and pretty much everything else delivered by local authorities outside of (ring-fenced) social housing.

Ironically, one of the most effective ways to strengthen local government would be to centralise or regionalise social care and SEND budgets or at the very least deal with them separately in council tax bills as a distinct precept. Depending on how this is implemented, this could provide a much closer link between how much communities pay to their local councils and the local public services they receive.

Step 4 – sort out the finances

As the joke goes, if you want to get to where you want to go, then you shouldn’t start from here.

In this case, ‘here’ is a place where many local authorities are in financial difficulty and struggling to meet their statutory obligations. Funding formulas that are based on out-of-date population numbers and don’t reflect underlying needs. A council tax system reliant on 1991 property valuations. Business rates that are an unwieldy tangled mess.

These weak financial foundations to the local government system in England are crying out for reform, even it is necessary to acknowledge that change will be very difficult and politically risky. Despite the many different options that are theoretically possible, it is worth considering the proposal put forward by the Fabian Society in a recent report on fiscal devolution produced in association with ICAEW.

The Fabians suggested that the distribution of central government grants be agreed among local authorities rather than determined in Westminster, accompanied by a more stable basis to determining their amount. Another route that the Fabians looked at is the system of shared taxation in Germany which provides the core funding for German regions out of national taxes in a way that equalises funding between richer and poorer regions.

Step 5 – rebuild trust

Prising the hand of Whitehall off the shoulder of English local authorities is not going to be easy. It will take significant political capital to make devolution happen, and there will be many reasons found to not hand over control of the purse strings ‘just yet’.

Many of these reasons will be down to a lack of trust. Trust in the ability of local authorities to manage money wisely, not helped by the governance failures of recent years. Trust in the transparency of local authority finances, not helped by the impenetrable nature of the accounts. Trust in the quality of local public audit, not helped by the local audit crisis.

That is why devolution is not just about the decisions that central government makes to give away or delegate power and money, and how it chooses to structure the system. It is also about the choices made by local and regional authorities asking for those new powers.

So, if you are in an area without a combined authority, it is time to start talking to your neighbouring areas about forming one. If your accounts make it difficult for stakeholders to understand how you have spent public money, it is time to streamline and invest in making them better. And if you are behind on your audits, then you need to do what you can to work with your external auditors to get back on track.

There is a big prize here. More effective and efficient local and regional government leading to better outcomes. And more bandwidth in Whitehall to focus on national and international priorities.

Alison Ring OBE FCA is director for public sector and taxation at ICAEW, the Institute of Chartered Accountants in England and Wales.

This article was written on behalf of ICAEW by Martin Wheatcroft in conjunction with Alison Ring, and was originally published in Room 151 and subsequently (with some minor changes) by ICAEW.

Ideas on fiscal devolution clash as economic progress stalls

Gordon Brown’s constitutional commission calls for greater fiscal devolution, going much further than the government’s gradual rollout of levelling-up devolution deals.

There appears to be a growing belief among policymakers across the political spectrum that regional and local authorities need greater financial powers if economic outcomes are to be improved across the UK. However, while there appears to be some consensus around extending the fiscal powers of the devolved administrations in Wales, Scotland and Northern Ireland, there is much less agreement on how far to go in devolving financial powers for the 84% of the UK’s population that live in England.

Levelling-up ‘devolution deals’ cover almost half of England

The government has adopted a gradualist approach to fiscal devolution that has principally revolved around ‘devolution deals’, part of its wider Levelling Up agenda to spread prosperity across England outside London and the South East. These deals generally provide an agreed stream of investment funding over several decades, greater control over the adult education and transport budgets, and some additional powers (eg, over second homes in Cornwall), in exchange for agreeing to direct elections for combined authority mayors or county leaders.

Regional devolution deals were announced in 2022 for the North East, York and North Yorkshire, and the East Midlands, together with county devolution deals for Suffolk, Norfolk and Cornwall. The government is also working on ‘trailblazer’ devolution deals along similar lines with existing city-regions, starting with Greater Manchester and the West Midlands combined authorities.

The devolution deals do not provide any additional tax-raising powers for regional combined authorities or local authorities, and the majority of local government funding in England continues to be determined by central government. It is also unclear whether the government will attempt to extend the coverage of devolution deals across the rest of England beyond the existing areas covered and the Devon and East Yorkshire deals that are still being negotiated.

Gordon Brown constitutional commission

The Labour Party has also been thinking about devolution as part of a wider debate on the UK constitution, with a review led by former Prime Minister Gordon Brown into the UK’s constitution. While many of the headlines about the review focused on reform of the House of Lords, most of the report focused on devolution and intergovernmental cooperation, including the role played by English regions. This included recommending greater long-term financial certainty and new fiscal powers for local government in England, in addition to deepening the devolution settlements in Scotland, Wales and Northern Ireland.

Several of the Gordon Brown commission’s proposals align with recommendations made by ICAEW to HM Treasury at the time of the last Spending Review. ICAEW called for stable funding for local authorities, rationalisation of funding streams, investment in fiscal resilience and strengthening financial management.

At the same time as advocating for greater fiscal flexibility for local government, the review stresses the need for scrutiny and accountability to ensure money is spent wisely. One option might be for the proposed Office for Value for Money to expand to cover local government, further developing the ideas put forward in a Fabian Society report, Prizing the Public Pound, produced in collaboration with ICAEW. Other ideas include the piloting of local public accounts committees.

Although clear in the reforms to the UK’s constitutional arrangements that the review would like to see, the report lacks detail on how it intends to achieve its proposals – for example in identifying individual taxes that could be devolved to regional and local authorities. 

The report is ambitious in aiming to implement reforms within just one parliamentary term, meaning there will be a lot of work and consultation required to design the new arrangements, establish public support and then develop and pass the necessary legislation.

Fabian Society-ICAEW round table 

A joint Fabian Society-ICAEW round table last year explored some of the practical challenges involved in devolving fiscal powers to regional and local government in England. The group, which included members and contributors to the Gordon Brown commission, looked at the proposed trailblazer deals being negotiated by Greater Manchester and the West Midlands combined authorities, as well as existing ideas that have been put forward for devolved taxes, such as on tourism.

The participants discussed how existing disparities in tax bases between different parts of the country meant some form of redistribution or central government funding was still likely to be needed, as illustrated by the cities of Westminster and Hull that each serve populations of around 250,000 or so, but which have very different levels of prosperity and hence local tax capacity. 

The approach adopted in Germany of shared national taxes was also discussed, a key element in how regional governments (Länder) are funded. This is further explored in a separate Fabian Society report: Levelling Up? Lessons from Germany.

While there were a variety of views around the funding mechanisms that could be used to pay for local public services, there was general agreement on the need to rationalise funding streams, for long-term funding certainty to enable local authorities to plan ahead, and an end to the process of submitting multiple bids to central government for incremental funding.

Martin Wheatcroft FCA, external adviser on public finances to ICAEW, commented: “While there appears to be an emerging political consensus on the need to devolve much greater fiscal powers to regional and local tiers of government in England, the proposals so far have been relatively limited in their ambition.

“This may be because national politicians find it difficult to let go of the purse strings, but it is also the case that delivering fiscal devolution is not that easy in practice. Economic disparities between different places mean that needs are often greater in areas with less in the way of tax-generating ability, while redistributive mechanisms are challenging to design in a way that all parties deem to be fair. This is not helped by a patchwork quilt of differing regional and local government structures that would make it difficult to implement a single standardised model for funding local public services across England.”

This article was originally published by ICAEW.