The path to greater devolution

the path to greater regional devolution

key figures at the roundtable...

Running order from left to right

Sir Paul Jenkins, former treasury solicitor (Chair)Graham Allen, MP for Nottingham NorthCharlotte Aldritt, City Growth CommissionPaul Dossett, Grant ThorntonRob Hann, Local PartnershipsJames Nation, CBIChris Naylor, LGiURoy Perry, Hampshire County CouncilAlan Trench, University College LondonTom Huggon, Deputy Lord Lieutenant of Nottinghamshire Richard Barlow, Browne JacobsonPeter Ware, Browne Jacobson

The path to greater regional devolution page | 3

contents

About the roundtable 4

Introduction 5

Executive summary 6

The age of austerity 7

The view from Whitehall 8

Recent changes 8

What next? 9

Do local authorities already have the powers they need? 10

Taking responsibility 13

The way forward 14

Ensuring accountability 16

A new role for central government 17

Conclusion 18


In particular we are grateful to former Treasury Solicitor Sir Paul Jenkins who deftly chaired the roundtable event and has supported this report from its outset. Whilst this report reflects the nature of the discussions, it does not necessarily reflect the views of any of these individuals or the organisations they represent.

The information and opinions expressed in this report are no substitute for full legal advice. It is for guidance only and, where applicable, illustrates the law as at the published date.

Browne Jacobson would like to thank the local and central government leaders, policy influencers and stakeholders who joined us in our new London offices and generously participated in a stimulating roundtable discussion.

about the roundtable

introduction

Devolution to local authorities has the potential to create real opportunities. However, there are also challenges for all tiers of government in seeking to provide sustainable and accountable service delivery.

This is clearly the right time to address some of the fundamental questions arising out of the devolution debate. Our roundtable discussion chaired by Sir Paul Jenkins focused on the current issues around devolution to sub-national bodies within England and the changing role of central government. We asked our panel to address the following questions, which are key to the devolution debate:

1. Does local government need further powers in order to meet the challenge of providing more public services for less?

2. What form will local government take in future?3. How will local government be funded in future?4. What will the role for central government be?

This paper addresses some of the questions and themes that came out of the roundtable discussion and proposes a number of recommendations which could assist both local and central government in achieving a sustainable settlement for devolution in England.


The local government landscape is rapidly evolving, driven by a combination of political aims and austerity but also by the vision shared by many within central and local government that decisions about public services are better taken locally.

Richard Barlow


executive summaryBased on our research, experience and the discussions at our roundtable meeting, Browne Jacobson’s conclusions are as follows:

• there are a number of factors driving the devolution debate, not least the recent referendum in Scotland and the widespread acknowledgement that some decisions are better made locally. However it is clear to us that austerity is a major factor in the attitude of both the centre and the regions. There is no sign of this becoming less important in future

• there is the willingness and, fundamentally, the capacity within local government to take on significant new powers. We believe there is a need for greater trust and support from central government to allow relevant authorities to do so

• devolution of genuine fiscal powers to local authorities is politically unpopular. However, for public service delivery to be sustained, authorities not only need greater spending freedom but also additional powers to raise money

• existing powers to trade for a profit or borrow money are underused. Greater awareness combined with a relaxation of the restrictions attached to their use may be part of the answer, and more politically acceptable, but efficiency savings are quickly running out and sub-national authorities are likely to push for further revenue raising powers

• increased fiscal powers would be most effective when combined with collaboration between authorities, a redrawing of administrative boundaries and clarity over structures. For combined authorities or other entities to be more efficient they need to be based on functional economic areas, taking into account both city regions and rural areas (in the latter case given the distances involved it can be more challenging to deliver economies of scale through the sharing of services)

• maximising democratic accountability and the engagement of the electorate is an important enabler of regional devolution

• the post-election period could present an opportunity for central government to clarify its own role and empower local authorities to allow for increased regional self-sufficiency and improved service delivery.

For public service delivery to be sustained,

authorities not only need greater spending

freedom but also additional powers to raise

money.


the age of austerity

This huge reduction has had a profound effect on services. Some have been reorganised (the Local Government Association says that at least 95% of all English Councils have now engaged in some form of shared service delivery3) and others have been given less funding or cut altogether. We are now in a position where 60% of councils are considering stopping at least some services because efficiency savings are fast running out4. It is little wonder that local authorities are looking for the devolution of further powers to raise and retain money, because without them they will be unable to continue to provide even the current level of services, let alone the ‘continuous improvement’ which they are required to achieve.

LGA research shows that ‘the majority of respondent councils said that at least to some extent continued efficiency savings will not be enough to tackle the challenge that 2015/2016 represents.’5 The challenges faced by local government are huge, and in many cases there are few options other than to reduce public services.

The problems caused by reduced central government funding are compounded by the increased need for public services caused by the recent recession. According to the Audit Commission6 ‘by mid-2009, almost every local authority nationwide had experienced increased demands for services which they had attributed to the recession.’ The Audit Commission’s report ‘Tough Times 2013’ found that despite continuing demand for some services, almost all councils have shown ‘a high degree of financial resilience’ supported by a ‘wide range of strategies’. However, the report recognises that ‘councils must adapt in order to continue to provide services that meet their statutory obligations and the needs of their local communities with reduced levels of income’ and that there will be ‘ongoing risks for councils as they do so.’

In order to address these issues, local authorities are demanding greater autonomy from central government and additional powers to determine what will make the biggest difference to their residents. As local authorities receive smaller grants from central government, they begin to question why they should rely so much on policy dictated by Whitehall and instead prefer to pursue their own agendas based on local need. In order to do so they need alternative funding sources.

Local authorities are being asked to provide more services for less. Central government funding to local government has fallen by 37% in real terms between 2010/11 and 2015/161, during which time £20 billion of savings have been made from local authority budgets2.

1. National Audit Office: The impact of funding reductions on local authorities, November 2014 2. Local Government Association’s briefing ‘Provisional Local Government Finance Settlement 2015/2016’3. Ibid4. Local Government Association ‘Under pressure - how councils are planning for future cuts’5. Ibid6. Audit Commission ‘When it comes to the crunch...How councils are responding to the recession’


the view from Whitehall

recent changes

However, the true extent of devolved power is more limited than it first appears. No ability to raise and retain taxes has been devolved7 and there have been no proposals to increase local government’s ability to borrow. These ideas appear to have little support in Whitehall.

Policies which relax controls on local spending are referred to as ‘spending decentralisation8’ as opposed to ‘fiscal devolution’ which would involve the transfer of significant powers to raise and retain taxes. Many commentators argue that such relaxation is not sufficient to enable local authorities to meet the

challenges of service provision and efficiency. The House of Commons Communities and Local Government Committee’s July 2014 report9 argues that ‘the process of devolution, if it is to be meaningful and effective, must include more than decentralised funding streams spent in local authority areas. Fiscal devolution provides enhanced local autonomy. Without it, local authorities will be agencies of central government, focussed in large measure on the requirements of the funder, central government and acting within spending constraints set by Whitehall.’

The three main political parties present themselves as advocates of devolution to local government. Many of the Conservative-Liberal Democrat government policies involved granting local government greater influence over how money is spent; for example the devolution of control of health budgets to sub-national bodies.

On 3 November 2014 George Osborne and the leaders of the Greater Manchester Combined Authority signed the Greater Manchester Agreement, granting the combined authority greater responsibility over various schemes that offer funding from central government for specific purposes and considerable new powers to a directly elected mayor.

Similar agreements are to follow for Sheffield, Liverpool, the North East, the West Yorkshire Combined Authority, and most recently a proposal for combined authorities for Derbyshire and Nottinghamshire.

The devolution of a £6 billion healthcare budget to the Greater Manchester combined authority has also been

announced. Despite these agreements, there appears to be little political appetite for devolution of real fiscal powers in the near future. Nevertheless, the increased spending power and opportunity to make significant financial savings as a combined authority provide a clear incentive for local authorities to join together and creates a powerful voice to lobby for further devolution.

7. The Greater Manchester City Deal enables the Combined Authority to ‘earn back’ increased Business Rate revenue attributable to economic growth from infrastructure investment - see BRRS section below8. House of Commons Communities and Local Government Committee ‘Devolution in England: the case for local government’ July 20149. Ibid10. George Osborne Budget speech 18 March 2015

“The most exciting development in civic leadership for a generation,” ...“we have now

reached provisional agreement to allow Greater Manchester to keep 100% of the additional

growth in local business rates as we build up the Northern Powerhouse.”

George Osborne, Chancellor of the Exchequer 10

Cllr Roy Perry,Leader Hampshire County Council

Graham Allen MP

11. Local Government Association, ‘Under Pressure’ 201412. Local Government Association press release 12 May 2014


what next?At our roundtable discussion, Graham Allen MP commented that “at the moment, most local authorities are focussed on surviving”.

The statistics confirm that the outlook for public services is bleak if funding cuts continue as they have been. LGA research11 suggests that spending will fall for services other than social care and waste by 43% in cash terms by the end of the decade.

“Local authorities have strived to shield residents

from the impact of cuts, but with another

£10 billion worth of savings to be found we’re

approaching a tipping point where options are fast

running out.”

Cllr Gerald Vernon-Jackson, Vice-Chairman of the LGA.12

Nevertheless, it is clear that this support is unlikely to come from central government in the form of increased funding. We are seeing calls from local government for new powers to raise money and this looks set to continue in future. However, what form these should take is a contentious issue and one on which the debate looks set to continue.


do local authorities already have the powers they need?

The power to borrow

Powers to charge and trade

Local authorities already have significant powers to borrow and raise money. These are being used to some extent but there is the potential for them to be used more effectively with relaxation of certain constraints. We heard at our roundtable that many authorities were reluctant to use (or even unaware of) current powers to trade and charge for services, and to raise money in other ways.

Local authorities’ principal borrowing powers derive from the Local Government Act 2003, which permits them to borrow money for any purpose relevant to their functions or for ‘the prudent management of [their] financial affairs.’ In exercising this power, they must comply with CIPFA’s Prudential Code for Capital Finance in Local Authorities (the ‘Prudential Code’) and the Local Authorities (Capital Finance and Accounting) (England) Regulations 2003. The Prudential Code requires each authority to set its own borrowing limit based on ‘generally accepted accounting practices’.

In theory, local authorities may borrow from a range of different sources, including the Public Works Loan Board, banks and other financial institutions or the bond market. In practice however, only a handful of authorities have obtained credit ratings enabling them to borrow on the financial markets and the only recent example of a local government bond issue is the £600 million of bonds raised by the Greater London Authority in 2011 to fund Crossrail. The vast majority of local government borrowing is financed by the Public Works Loan Board.

Local authorities also have powers to borrow against the rental income generated by their housing stock. Such borrowing is subject to a national cap based on calculations made under the Housing Revenue Account (‘HRA’) subsidy system, which imposes tighter restrictions on local authorities than would apply under the Prudential Code

Tax Increment Finance (‘TIF’) schemes allow local authorities to borrow money for specific infrastructure projects and use the business rates generated by the project to repay the loans. Borrowing under a TIF scheme is subject to a cap and local authorities must apply to central government before entering into such a scheme.

Finally, under ‘earn back’ schemes, central government may allocate funds to local authorities for specific policies that run for a fixed-term; the local authorities are allowed to retain any unspent sums at the end of the term. Such schemes are in place in a number of local authorities, including the Greater Manchester Combined Authority.

Local authorities have a number of powers which allow them to trade and to charge for services.

The ability to trade for profit is controversial and, to protect public funds and ensure that they are spent appropriately on the provision of public services, authorities have been subject to a number of restrictions. Powers to charge are often limited to cost recovery, or require the income generated to be ring-fenced, and do not provide a significant opportunity to deliver a profit. Both areas are subject to a complex legal framework and this complexity does not help local

government in making best use of the opportunities available to it. For further details see our special report ‘Local Authority Charging and Trading Powers 2014’.

Relaxation of these rules could allow local authorities greater freedom to collaborate with other private and public sector organisations and make use of a greater number of their functions and powers in order to generate income.


Tax raising powers

Local authorities have some powers in relation to taxation, in particular council tax. However, even here their powers are limited. Authorities can set the level of tax for each band and retain the revenues generated, but the ratio between the bands and property values are set centrally. Property values were last assessed in 1991 and have not been increased since, despite significant changes in the property market. Authorities cannot raise council tax beyond a fixed percentage set each year by central government13 unless they first obtain a ‘yes’ vote in a referendum. However, no local authority has had such a referendum to date14 .

There are a number of changes which could significantly increase the council tax yield, such as revaluation of properties or granting local authorities the right to set council tax bands. However, in practice, any government

considering these changes will balance the benefit against political considerations, and these changes tend to be extremely unpopular with the electorate.

Since April 2013 a new Business Rates Retention Scheme (‘BRRS’) has allowed local authorities in England to retain a proportion of business rates generated in their areas, subject to the redistribution of excess business rates collected by some authorities to those which are unable to collect sufficient for their needs. Prior to 2013, all business rate income was allocated to a single national pot and distributed to local authorities via a formula grant. The new BRRS is extremely complicated. It was designed to reduce local authorities’ reliance on funding from central government and to provide an incentive for local authorities to promote private enterprise in their areas.

13. 2% is the increase threshold for 2015/1614. The Bedfordshire Police and Crime Commissioner seeks a 15.85% increase in precept and this is subject to a referendum on 7th May 2015

Each potential borrowing option is limited in some way, on the basis that increased local authority borrowing increases the overall national debt. Removing the limits on existing local authority powers to raise money is one option to significantly increase the ability of authorities to raise money for investment. Ways of achieving this include:

• removing caps on HRA and TIF borrowing• retaining the national HRA cap but allowing local authorities to transfer their remaining

borrowing capacity to each other to allow for greater flexibility• introducing TIF schemes that allow loans to be repaid through a wider range of taxes –

for such schemes to work local authorities would need powers to set a wider range of taxes (see below), alternatively, funds would have to be allocated to local authorities according to specific tax receipts in their areas

• extending the use of earn-back schemes• amending the Local Government Act to allow local authorities to use property as security

for loans• relaxing the limits required by the Prudential Code• creating a collective bond issuing agency for local authorities (which would allow local

authorities to gain access to the bond market without first obtaining a credit rating).


In addition to extending the taxation powers that local authorities already possess, there are calls for local government to be granted powers to levy additional taxes. The London Finance Commission has recommended that ‘the full suite of property taxes (council tax, business rates, stamp duty land tax, annual tax on enveloped dwellings and capital gains property development tax) should be devolved to London government, which should have devolved responsibility for setting the tax rates and authority over all matters including revaluation, banding and discounts’16. In addition, it suggested that London government should be allowed to introduce a suite of smaller levies and taxes without the need to obtain permission from central government. Although the report focusses on London, it states that ‘most of our recommendations or similar options could, and in our view should, operate well in England’s other big cities.’

However, there are real issues with some of these taxation proposals. As the London Finance Commission recognise, ‘stamp duty has a disproportionate impact in London, where the brunt of its burden is borne as a result of there being a large number of high-value properties in the capital. If wrongly handled, stamp duty could act as a block to economic growth and detrimentally distort the housing market’. Devolution to local authorities in the English regions is therefore far less likely to raise significant amounts of revenue than it would in London, and the risk of damage to local economies and housing markets mean that it may not be suitable for devolution in its current form.

From 2016, Scotland will have powers to set a Scottish rate of income tax. This is also the case in many other major cities around the world. However, there are concerns that devolution of income tax may have a detrimental effect on employment. Additional tax raising powers have been mooted in Scotland. A hotel occupancy tax has been suggested, which would allow local authorities to levy a tax on occupied hotel bedrooms. Taxes of this nature are sufficiently localised to be administered and collected by a local authority but such small taxes will not raise sufficient revenue to fill the gaps in funding.

There are understandable concerns within the private sector about local tax raising powers. Different regional taxation regimes could make doing business in the UK extremely complicated. Nevertheless, where very localised levies and taxes have been introduced which have an identifiable local benefit; for example science and innovation taxes, these are often supported by the private sector as bringing wider benefits to the local community. LCCI’s 2012 report ‘Driving Local Growth: the Business Case’ said that ‘the success of Business Improvement Districts (BIDs) is proof that businesses are prepared to pay more in business rates, but only because firms know those taxes will go towards investment in their locality. If councils are permitted to keep a proportion of increases in rateable values, it is vital that they commit to developing a new relationship with their business community’.

15. George Osborne, 18 March 201516. London Finance Committee ‘Raising the Capital’ May 2013

Although relatively new, the BRRS scheme could be amended by granting local authorities power to:

• retain a greater percentage of revenues15 • set the multiplier by which the rateable value of a property is multiplied • undertake revaluations of properties• set discounts and tax breaks.


17. Office of National Statistics Regional Economic Indicators July 2014

It is clear that there is no easy answer to the question of how to raise additional funding for local government. Use of existing powers may go some way towards bridging the gap, but with continuing reductions in public spending, some real alternative powers need to be identified. Some English regions have a larger economic output than Scotland or Wales17, and there are significant opportunities for these regions to use their tax base to support public services.

Our view is that the funding question could partly be addressed by continued decentralisation of budgets, relaxation of the regulations capping the amounts which local authorities can borrow against their housing stock, and by devolving powers to raise a suite of local taxes; for example hotel bedroom taxes, tourism taxes and science and innovation levies. However, this will not go the whole way to solving the problem of how to provide more public services for less, which requires a more radical solution.

“If you speak to a firm with a global export market, they are not waking up and thinking about

devolution. Fact. But they are waking up and thinking about how they can promote growth in

the regions in the UK and if this agenda links to tangible outcomes then you’ll bring the private

sector along.”

James Nation, CBI

However, there is a risk that local authorities do not have sufficient resource to cope with the strategic planning required where increased powers are exercised. In his foreword to the London Finance Commission’s 2013 report ‘Raising the Capital’, Tony Travers said that “compared with other major

countries, sub-national government in London has been infantilised by a long term move over many decades to centralise public finance and tax raising...as a result, co-ordination which can deliver real results at a local level is lost.” Although this is an argument for retaining powers centrally, our view is that this should not be a barrier to devolution.

Central government will want authorities to demonstrate that they have the capacity to run any new services. That simply won’t be possible until they are actually able to run them - local government will not be in a position to invest in additional capacity and expertise until it knows such powers will be available.

Our discussion group considered whether local government was ready for additional powers (or perhaps more accurately, whether it was ready to have restrictions lifted from it). The unanimous view was that it is.

taking responsibility

“Central government should take the

thousands of strings off the Gulliver-like

figure of local government so that it can

make a contribution”.

Graham Allen, MP for Nottingham North

the way forward

A combined approach

To achieve this liberation, central government must be reassured that powers are being passed to a ‘safe pair of hands’. Often this will involve adoption of a new structure such as a combined authority.

Recent history has shown that the greatest powers have been devolved to bodies which cover a regional economy rather than a traditional council boundary, that are democratically accountable and have the support of more than one local authority (for example, the

Scottish, Welsh and Northern Irish assemblies and the Greater Manchester Combined Authority).These conditions allow a body to raise taxes and fees from a local economy, to be held accountable by the electorate and the UK Parliament and to take advantage of economies of scale. It naturally follows that central government is unlikely to grant further powers to an entity which cannot demonstrate that it has the capacity to become accountable and to some degree self-sufficient.

Local authorities are increasingly coming together and finding that through collaboration, they are more able to lobby central government to ‘throw off the strings’ restraining their spending power and devolve greater control over budgets.

Innovative collaborations between authorities have been a key feature of recent years and there are many options for authorities to work together. These may be in the form of combined authorities, but this is not necessarily the case. Existing powers to collaborate, for example through delegation of statutory powers and functions under the Local Government Act 1972 and the Local Government Act 2000 may also provide an opportunity to work together without the need for a review, publication and approval of a scheme, and consultation.

Combined authorities were set up to allow authorities to collaborate to support economic regeneration, transport and local growth. They provide an excellent mechanism for regional collaboration for these purposes; however they are now being passed a whole range of powers, including devolved budgets for health and social care; in essence forming an additional tier of government which is not, itself, democratically accountable.

There appear to be two schools of thought about combined authorities; either they should be limited to the purposes for which they were created, or they could become a new tier of government which takes on the functions of all of the lower tiers. In either case, we felt that there was a degree of rationalisation which was required in order to clarify the roles of local government.


“The point of a combined authority is

growth, economic development and

transport. We are now trying to wrap a

whole bundle of difficult issues into them.

We are not saying that there should be one

type of local authority, we are saying that

each area can bid for their own powers.

We are not rationalising the number of

public bodies, we are adding to them. It is

creating a checkerboard of differing levels of

bureaucracy and differing remits.”

Rob Hann, Local Partnerships

‘Root and branch’ reorganisation

Some members of the panel felt that the time was right for a ‘root and branch’ reorganisation of local government, revisiting the roles of public bodies and their geographical scope.

Combined authorities go part way towards redrawing boundaries around functional economic areas, but they do not allow authorities to collaborate unless they have contiguous boundaries. A consultation is currently taking place on changes which could allow greater collaboration regardless of geography, but no change to the legislation has yet been made. If enacted, such changes could allow greater collaboration on the basis of regional economies. Research by the City Growth Commission suggests that ‘with the right fiscal and financial flexibilities, metros (city regions) could be sufficient in scale, ambition and reach to raise and redistribute revenue within their own areas’ and the reform of local authorities around a functional economic area, with significant devolved fiscal powers could be key to achieving this. Research suggests that if the 15 largest metros in the UK were to grow at the same rate as the UK as a whole between now and 2030 with London maintaining its historic growth rate, £44 billion would be added to the northern economy in real terms18.

But, what happens if authorities are not in a position to receive additional powers? The capacity of local authorities to take on devolved powers differs across the country. The devolution of further powers is unlikely to help unless the council is performing sufficiently well to exercise them appropriately.


“It’s now 44 years since the last major

reorganisation of local government.

The question we now have to

ask - is it time to have a root and

branch reorganisation again. Using

Nottinghamshire, the county boundary

was set out by the Danish occupation

1000 years ago. A lot has gone on

since then. There are lots of reasons

to change the boundaries. The tiers

simply haven’t worked.”

Tom Huggon

18. ‘On the pathway to a Northern Powerhouse’ George Osborne, Beetham Tower, Manchester, August 2014

Tom Huggon - Deputy Lord Lieutenant of Nottinghamshire

A level playing field

The opportunities for authorities to become self-sufficient are affected by the social structure in their areas. Whilst some authorities have high tax bases and opportunity to raise money through charging for services, others (particularly in deprived areas) have populations increasingly dependent on public services but unable to pay for them. It follows that there will always be a role for national government to support weaker regional and local economies and underperforming authorities. Without this level of ‘strategic balancing’ the effect of devolution in certain areas would be restricted.

Authorities in fiscal surplus are unlikely to want to subsidise those which aren’t. Financial support for these authorities is therefore likely to have to come in part from central government, whether as part of a ‘need’ based grant or through imposed collaborations between authorities on a regional basis. This is likely to be unpopular with local government, however, it could provide an opportunity to rebalance regional economies and rationalise, leading to the creation of larger bodies with all of the functions of existing local authorities. Such authorities would be a significant voice when lobbying for additional powers.

ensuring accountability

A combined authority may be set up with membership from each authority without taking into account the views of the electorate within the combined authority as a whole. In the examples of combined authorities we have seen so far, central government has been unwilling to devolve significant powers to an authority without an elected representative. However, in the majority of cases when a referendum has been held for an elected mayor, the electorate has rejected it.

The Conservative party’s preference for elected mayors was set out in their 2010 manifesto. Local authorities themselves have the power to adopt a mayor and cabinet system of governance under the Local Government Act 2000 and this has been used by some authorities already, such as Leicester and Liverpool City

Councils. It may be that in future more authorities will adopt such arrangements as part of their proposal for the devolution of further powers.

Alternatively, the government’s power to require a local authority to hold a referendum on appointing a mayor may be used to impose an additional layer of accountability where this is seen to be required. The issue will be persuading voters. Without significant powers, mayors may be seen as symbolic with no real relevance for a local community. Linking mayors to the grant of new powers, or as a condition of new, more economically powerful groupings may resolve the issue. The alternative may be that mayors are imposed by central government even where they are not called for locally. Our view is that this should be resisted.

Whether a combined authority without an elected mayor, or another form of cooperation, there is often a democratic deficit in many local authority collaboration arrangements.


Issues for central government

a new role for central governmentSpending decentralisation appears set to continue, whether in the form of combined health and social care budgets, the Better Care Fund, business rates relief or otherwise. Fiscal devolution appears less likely in the immediate future, meaning the pressure on local government to innovate will continue. Nevertheless, the existing options for innovation and collaboration are significant, including joint ventures and other shared services, trading companies and delegations of powers.

There are two key issues which central government must address. First, as some authorities use existing powers to become more self-sufficient, what should happen to those which are unable to do so? Secondly, is there a need for a body to oversee all of the new sub-national bodies which may be created by local authority collaborations?

Many local authorities are collaborating to provide services and lobby for greater devolution, and there are plans for a number of new combined and unitary authorities. However, this is not the case nationwide. Often rural authorities and those in deprived areas with a lower tax base are in a different position. The options open to these authorities may be limited and they may be left reliant on central government funding. Central government could look for ways to encourage relationships between authorities and to assist them

in forming alliances. More drastic proposals include reforming local authority funding to base it primarily on need or totally reforming local government on the basis of regional economies which would allow the stronger economic areas to support their rural and more deprived neighbours.

In a reformed local authority landscape, the role of central government can be clarified. The day-to-day management of local funding will be divested to local government and central government can focus on strategy and policy considerations for the nation, albeit maintaining responsibility for national oversight of the health service, the majority of taxes and central decision making. The result of significant devolution may be the opportunity for increased clarity and accountability and greater public engagement with politics.


Managing risks

Local authorities have and will continue to adopt strategies and structures aimed at delivering income and efficiencies. Entities created for these purposes are an additional layer of quasi-public bodies which are performing public functions but are not subject to the same degree of scrutiny as local authorities.

The risk of creating structures which are not democratically accountable must be balanced against the steady decline of service provision if the status quo prevails. The National Audit Office report dated November 2014 indicates that the reduction in central government funding is making meeting statutory service obligations more challenging. This looks set to continue - LGA Chair David Sparks in his introduction to the LGA’s response to the Independent Commission on

Local Government Finances report ‘Financing English Devolution’ said that “The services councils provide will not be able to withstand another five years of cuts without radical reform, and it will be people who rely on good roads, public facilities and care who pay the price”.

This presents a potential financial and reputational risk to all levels of government. An analogy can be drawn with the academisation of schools, which now operate without the oversight of local government. There have since been numerous reports of financial irregularity, poor governance and even extremist plots, which could have been mitigated by additional oversight. Central government’s oversight role is likely to become increasingly important in future.

conclusion

If spending cuts are to continue, devolution of fiscal powers to local government and the reorganisation of local authorities around functional economic areas would provide a firm footing for the future.

However, the grant of further fiscal powers would require a supportive relationship between central and local government to guide local authorities in using their new powers. In reality this appears a long way off. Central government does not have the appetite for devolution of fiscal powers, but it is our view that without greater powers to raise and retain taxes efforts to drive efficiencies will deliver little more than a superficial reorganisation of the status quo.

Whilst existing powers to trade for a profit or borrow money are under utilised, we believe that austerity will drive their increased use. We consider that the use of these powers would be enhanced by a relaxation of the restrictions currently imposed upon their use.

In our view spending decentralisation will continue and local authorities will use innovative solutions to take advantage of available opportunities. We consider that the value of new structures open to local government are likely to provide the greatest opportunity for efficiency and budgetary savings, and increase the ability of local government to effectively lobby for greater fiscal devolution.


“Austerity will remain a major driver

for what happens. It has been bringing

together organisations and given the

lack of clarity we have at the moment

collaboration will continue.”

Richard Barlow, Browne Jacobson

There is a risk that pressure to reduce the budget deficit will make the temptation to retain a firm grip on public spending too strong to resist for central government. However, it is necessary to balance the needs of the UK economy with the need for effective public services in the regions.

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The path to greater devolution

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Transcript of The path to greater devolution