20
Economic Affairs Committee
Uncorrected oral evidence: Fiscal devolution in England
Tuesday 15 September 2026
3.05 pm
Watch the meeting
Members present: Lord Liddle (The Chair); Baroness Alexander of Cleveden; Lord Burns; Lord Carrington of Fulham; Lord Newby; Lord Petitgas; Lord Prentis of Leeds; Lord Razzall; Lord Reid of Cardowan; Baroness Wheatcroft; Lord Young of Cookham.
Evidence Session No. 8 Heard in Public Questions 115 - 129
Witnesses
Howard Dawber OBE, Deputy Mayor of London for Business and Growth; Lord Houchen of High Leven, Metro Mayor, Tees Valley.
USE OF THE TRANSCRIPT
37
Howard Dawber and Lord Houchen of High Leven.
Q115 The Chair: Welcome to this meeting of the Lords Economic Affairs Select Committee, where we are looking at the very topical question of fiscal devolution. We have with us today two witnesses who are closely engaged on this question, representing mayoralties from different parts of the country. First, Lord Houchen, could you introduce yourself?
Lord Houchen of High Leven: I thank the committee for inviting me. I am currently the Mayor of the Tees Valley. I was first elected in May 2017 as part of the first cohort of directly elected mayors under the northern powerhouse reforms of George Osborne. It has been a significant journey over the past nine or 10 years—we were just saying outside that there is a lot of confusion around whether I am a lord mayor, a mayor, a Lord or some other qualification—with a lot of change.
There are different ways in which devolution has accelerated or decelerated, depending on the Administration and their buy-in. My being invited to this committee could not be more timely. The prioritisation of devolution, which has been on the radar of Governments of both colours in recent years, has gone into the stratosphere with the new Prime Minister prioritising devolution. This conversation about fiscal devolution, including what it is and is not, will be particularly pertinent to members here and in the other place in terms of how those rules might come into force, how they could be managed and the accountability for them.
Howard Dawber: Good afternoon. Thank you very much for inviting us to take part. I bring apologies from my boss, the Mayor of London, Sir Sadiq Khan. He could not be here because he is being introduced to the House of Lords this afternoon as Lord Khan of Tooting; unfortunately, it clashed.
I am the Deputy Mayor of London for Business and Growth, covering the economy, business and skills. I chair London & Partners, which is our promotional agency. Prior to that, I spent 20 years working in the private sector at the Canary Wharf Group, where I worked with successive mayors on things such as the Elizabeth line, which is quite pertinent to today in terms of where fiscal responsibility sits. As Lord Houchen said, this is a perfect time. We have had the Cabinet paper signalling further fiscal devolution and we are in the run-up to the Budget, where some of that will be codified, so this is a very exciting moment.
Q116 The Chair: The first question is a simple one: will fiscal devolution boost economic growth in your area? If so, how?
Howard Dawber: In short, yes, I think it will. I will give you a concrete example: Crossrail and the Elizabeth line. I worked on this from the private sector point of view. We spent a long time campaigning for the line being supported by government in terms of both a route and how it would be funded; that could all have been done a lot quicker if the Mayor of London had had more responsibility over some of the fiscal measures that we then needed to bring in to fund it.
When I was at Canary Wharf, we were campaigning for additional taxation on property companies because we could see the benefit that the line would bring to enable physical growth that would not be possible otherwise. We also made the case that London should pay more of the costs, that this should not be seen as a national project that happened to be in London and that, because of the very significant growth the line would deliver, Londoners and London businesses should pay a significant chunk of the money. However, the structures to do that were not in place.
Through legislation and working with successive Governments, we managed to get a business rate supplement and the mayoral community infrastructure levy as mechanisms for capturing some of that growth in the economy to help pay for the line. The Elizabeth line has been a very successful railway line: it now carries, I understand, one in six of all rail passengers in the United Kingdom, and it has certainly delivered significant growth around the stations of the line. It could have been done a lot more quickly, though, if the Mayor of London had had some of those powers up front to put that funding package together and drive that project.
The overnight visitor levy, which is proposed new taxation and is not currently captured, is incrementally additional funding that could be used to support growth or for other things. The proposal to devolve some of the income tax would then enable, for example, mayors to borrow against that income tax; they cannot currently borrow against the grant that is given to mayors to fund certain things. A mixture of control and new responsibility provides the context in which further fiscal devolution will support growth.
Lord Houchen of High Leven: I come at this from a slightly different angle. We have to be clear what fiscal devolution is being proposed. As Howard rightly said, there are things such as SILs and TIFs, which have been available or not available to different parts of the country through devolution and are now coming into force in a more uniform way across the country. There is the overnight visitor levy, which is a single new tax being introduced by mayors who want to use it. We have to be clear that the measures we are talking about and the fiscal devolution that the Prime Minister is talking about concern how combined authorities—mayoral combined authorities, by and large—are funded by central government.
Given how that works, fiscal devolution is a slight misnomer. It is not technically fiscal devolution. In terms of what the Government are doing—they have been pretty clear on this; I will make up the numbers for the purpose of this example to keep it simple—the Tees Valley will get £1 billion, let us say, in grants and other moneys from central government over the next three years. The Government will calculate the amount of money that we currently get and say, “That’s the equivalent of”—again, I will make it up—“3% on income tax, so we’ll allow you to retain 3% of income tax”. The reality is that they are not giving us 3% of income tax. What they are doing is replacing a series of grants, with strings attached, with a single block grant: a Section 31 grant, which gives me, as the mayor, full autonomy on how to spend it. They are saying that that is the equivalent of 3% of income tax. To set up fiscal devolution properly, you are having to set up, in effect, mini-HMRCs, which is not the game. It is clear that it is then the responsibility of the mayor to provide an appropriate business case as a spending decision to justify the spend of that money. Government do not tell you at that point how to spend the grant, so, in reality, it is a movement of chairs; it is not actually fiscal devolution.
The next outstanding question, on which I hope we will hear more, come the Budget, is: what is the level of that? If it is a like-for-like replacement of what we already have, we have already made significant spending commitments on infrastructure. This means that, if we get fiscal devolution that replaces the billion pounds-worth of grants with a £1 billion grant, all we are doing is substituting one grant with a single grant, and our spending commitments are already made. If fiscal devolution is additional money on top of that, it gives us more flexibility to look at pipelines of how we can invest in infrastructure, job creation and getting sites ready for investment. So we have to be really clear about what fiscal devolution is and is not.
The second part is that, irrespective of what we call it, what the Government are proposing will help positively in two ways. First, it will help with flexibility because, with the strings attached over the past three or four years—it happened in the last two years of the previous Government and has certainly happened in the first two years of this Government—it was more decentralisation than devolution. We would get money but DWP or DfT would say, “You can only spend it on this and, of your budget on transport, only 10% can be spent on roads”. It was quite restrictive. Having full flexibility to say, “We can spend it on what we like, but we still have to justify ourselves through a business case and a spending decision through the accountability framework”, is a good thing because it means that we can manage our budgets. If certain projects are delayed for whatever reason, year and multi-year, we can move our accounts around: we can move money from transport to business, business to culture or whatever.
Secondly, it will give a long-term settlement. What the settlement will be is not a three-year transport settlement but a long 10, 15 or 20-year settlement to say, “Year in, year out, this is what you will get”. That longer-term planning, particularly when you are looking at infrastructure, paired with flexibility, are two significant benefits of this reform. I just want to be clear that this is not fiscal devolution in the strictest sense, which you may or may not have heard when I have talked about tax rebates, because there is a misunderstanding around what the mechanism is and how you would go about doing something like that.
The Chair: Apart from the benefits that you outlined in your answers, are there any other reasons why you think fiscal devolution is a good thing? Does it improve local accountability? Will it make it easier for services to be run more efficiently than they are? How important is revenue certainty—Lord Houchen, you indicated that it is important—to the efficiency of your outputs as a local mayor?
Howard Dawber: There are two points to pick up from what Lord Houchen said. One is that, at the moment, as you said, quite a lot of our funding comes in the form of government grants. It is great that we have had a multiple-year grant and an integrated settlement in London, which enables us to move money around between different responsibilities with fewer strings attached. However, we cannot borrow against that grant because, obviously, a future Government could just decide not to give a grant at all, to give a smaller grant and so on. If the principles of the devolution of a piece of income tax are followed through, that would allow you to borrow against the income tax because, as you said, it is a long-term, reliable source of income going into the future.
The second thing—you are absolutely right here—is that, if it is just swapping one grant for a grant by another name, that is one thing, but can you capture some of the increase by engendering and promoting growth in your area? For example, say income tax goes up and you are able to capture some of the increase, and there is an incentive there, that gives another incentive to local groups. It is a significant change in the power structure between regional government and national government.
There is an accountability issue and a principle here: historically, we have had very strong city government in the United Kingdom, going back 1,000 years to the strength of the City of London in setting itself up as an alternative power base as compared to the Crown. Historically, we have had very strong city government, and most of our competitor countries around the world have very strong regional or city government, often within a federal structure. We have not had that in the UK and we have lost out because of it. There have been various attempts over the years to have a regional government structure—you may remember the Government Offices for the English Regions and the regional development agencies—then this new process, over the past 30 years, with the Mayor of London being created in 2000, the Osborne city deals under the previous Government and new deals coming forward under this Government.
We are heading in the right direction, but we are a long way from where we need to be. In London, 93% of the tax raised goes to national government, then national government chooses how to spend that. Some of it comes back to the mayor and local authorities, but it is at the discretion of national Government Ministers. In New York, which we see as a strong competitor of London’s, 50% goes nationally and 50% is retained by the mayor. In Tokyo, 80% is retained by the mayor, who is responsible for lots of things for which we are not responsible. That local accountability for local services delivered within London, at a mayoral level and at a local authority level, is important. This is why having more of those decisions taken at a regional or city level, as compared to at a national level and then coming down with strings attached, is a significant change—one that will, I think, drive greater accountability and engagement.
Q117 Lord Young of Cookham: Ben, you have already made the point that what is on the table is simply using a different formula to allocate money from central government. I want to follow up on a point that Howard just made. He sees a key difference as being the ability to borrow against the future income tax flow in a way that you cannot borrow against government grants. I want to pursue that for a moment. At the moment, there are no restrictions on what a local authority can borrow. Under the 2001 Act, I think, it has to be prudential and sustainable. The Government can intervene if they think that you are going too far, and your borrowing is secured against the rates.
The argument that I think I heard was that the grants could suddenly be cut off, whereas the income tax stream is more reliable. The grant system changes all the time. Each time, there are floors and ceilings to prevent too much distortion in the amount of money a local authority gets. If you switch over to income tax, central government could cut income tax. I wonder to what extent this really is a more secure income stream against which to borrow than the system that we have at the moment. No Government are suddenly going to cut off local government grants; that would be unthinkable. Is the key factor the ability to borrow in a way you cannot at the moment?
Lord Houchen of High Leven: By and large, for most mayors, yes. There are lots of infrastructure projects where they have a level of grant, but some of their ambition around what they want to invest in—again, ultimately, this goes back to the accountability point: as a directly elected mayor, they must justify spend to local people—means that they want to accelerate a lot of the development. Having that long-term income stream in legislation, which might give more certainty than grants, is for people to discuss; I do not have a strong view on that one way or the other. It would allow them to significantly borrow against that.
One thing I would say is that, at the minute, all combined authorities—I might be wrong, but we certainly do this; indeed, most combined authorities do—do not behave in the same way as a local authority. We do not have prudential borrowing in the same way that local authorities are completely uncapped. We have a hard cap. In each of the deals, there is a hard cap against a mayoralty. Even if I have a fantastic business case that has strong prudential borrowing and a strong income stream, if I have already borrowed, say, £500 million, and another £100 million takes me up to my cap, that is an absolute cap that I cannot borrow.
Lord Young of Cookham: That is a different point. That is because there is a cap. It is about the source of the income.
Lord Houchen of High Leven: That is absolutely true. The reason why that was introduced is, first, because mayors were relatively new and, to some extent, immature as an infrastructure, so there was a safety net to try to cap that.
Through this, in terms of what the Government are proposing to do—I say this from speaking to Treasury officials, rather than Ministers, so there may be some divergence—I know that officials are looking at a version of a cap and a collar on income tax to negate the fluctuations that may happen, which we see in places such as Teesside. If you have a large employer that loses 4,000 jobs—take Jaguar Land Rover, for example—that will have a material impact on income. The Treasury is talking about compensating on the downside as well as the upside. It is saying that, to some extent, if you are too successful, it might cap the upside to capture it in central government as well. These are just working philosophies—we do not know what will come out in the coming weeks—but they are being discussed.
Lord Young of Cookham: May I press Howard on the point that he made? Are you saying that, under the new regime, financial institutions will be more prepared to lend more money to mayoral strategic authorities because they now have their money coming from government through an income stream, rather than through a grant? Is that the argument?
Howard Dawber: They should be. Certainly, that is how we are looking at this in terms of both income tax and things such as the retention of business rates and the overnight visitor levy. All of those measures are tax-based and tax-backed. That is a different conversation with a financial organisation, as compared to, as Lord Houchen said, the government grant, which is fixed and capped at a certain level.
We have been very successful, given the size and strength of Transport for London and its historically good credit rating, at borrowing against, for example, future farebox on Crossrail; that was part of the funding package for Crossrail. We are looking at that in terms of one of our current projects: the extension of the Docklands Light Railway to Thamesmead. Until now, nearly all the levers in the box have been held at a national government level. We have farebox but we did not control, for example, business rates. Off our own bat, without Treasury permission, we could not do a tax incremental financing deal, borrowing against business rates. These are all steps in the right direction to give mayors a bit more fiscal autonomy, but it is still a relatively small amount as compared to what other cities around the world have.
Lord Houchen of High Leven: To follow up on that and, I suppose, answer Lord Young’s question directly, the answer is demonstrably, “Yes, it will”. If you go to any financial institution to leverage that money, they will look at the credit rating of the organisation. Our combined authority does not have a credit rating, but they will use an evaluation mechanism that gives us an equivalent of X; that is often strong enough.
What the Government are creating here is gainshare 2.0. When we were first established as mayors, all mayors got a 30-year income stream. Take the Tees Valley, for instance: we got from the Government, as part of our deal, £15 million a year, guaranteed for 30 years. That is not index-linked; it is a flat amount. When it was set up in 2017—I know this to be true—that was done with the purpose that the Government wanted you to borrow against that income stream. They did that on purpose by not index-linking it, so you get more bang for your buck if you spend it up front, to try to incentivise growth.
If you say to an investor, whether it is M&G or Macquarie, “We want to borrow £200 million, but don’t worry, this is how our money works. This is the contract we have with government against that”, they will borrow against that all day long because, really, they are borrowing against government covenant strength, not your covenant strength. Having this income stream that is guaranteed in legislation will help to some extent.
There is an interesting academic question here; it depends on how financially prudent you want to be. Do you need the income stream from income tax? If you have a borrowing case because you have a piece of land and an investor, and if you had the ability to retain business rates, for instance, income tax could be slightly irrelevant because, if you can retain business rates—and if, for example, you own the land and you can get some rental income as well—there is a strong chance that, on their own, those investments stack up by themselves. We have seen this a lot in Teesside, which means that we do not have to rely on our gainshare. There is an argument that, by releasing the absolute cap on borrowing and leaning more heavily on the business case and the spending decision at a combined authority level, which is a Green Book spending decision, that should give confidence to go to the market and say, “I have an investment from what is, in effect, a BB-rated company. We have a parent company guarantee”.
I can give a specific example. We have landed SeAH Wind on Teesside. It is the largest single private investment ever from South Korea. It is a private company with a £1.4 billion investment. It built a 1.1 million-square-foot shed. It pays rent and business rates. Because of the deal we did with the Government in 2018, we retain the business rates on the whole site. With the business rates income, once that reaches practical completion, and our rental income, we went to Macquarie, which financed the whole project. It did not require us to get income tax from government; the business rates and rental income allowed for the borrowing to build that project. Why did it do that? It had a huge amount of support from UK Export Finance and some support from the South Korean Government. It had a parent company guarantee—it is part-listed on the Korean Stock Exchange—so it was a commercial deal that stacked up.
When you talk about borrowing, what lots of mayors are talking about—we have been part of this as well—is, “We want to build new train stations. We want to subsidise buses around franchising”. That will never be financeable in the market because it requires subsidy. Take Manchester; I have talked about it a lot. The Bee Network costs the taxpayer £250 million net every year. Around £120 million comes directly from government through the bus service improvement plan—BSIP—and the rest comes from the Greater Manchester Combined Authority. That is fine; it is a spending decision. When Andy was mayor, he was re-elected, so local people must want that. There is a transparency and accountability to it. However, you are never going to be able to borrow on the markets because they will say, “Hang on, you want to borrow how much money, and you’re going to lose £250 million a year?” What a lot of the mayors want is to say, “It’s not about the business case. We’re just borrowing against the direct income stream from government, and we are leveraging the government covenant to expose that risk to the market”, but, ultimately, it is all backed off to government.
Q118 Lord Petitgas: That was enlightening. If we abstract ourselves from whether the grant equals the proceeds of devolution and look just at the taxes that might be assigned or devolved, what, in your mind, would be the most efficient way of finding the right construct in terms of which taxes to devolve or assign to local government? We have talked about economic growth. We have talked about having skin in the game in terms of having some equity upside, depending on which projects you are backing. We have had other people come here; we talked about size, efficiency, the quantum raised and so on. In an ideal world, what would be the right construct of which ones to assign—all the way from the small ones to the big ones?
Howard Dawber: There are probably four tests for which taxes are appropriate in looking at devolving to local areas. The first is economic growth. Is it a tax that grows when the local economy grows? This answers some of the points you were making. Are we investing in growth then capturing the benefits of that growth? Income tax, for example, does that. If income tax is devolved to London, London grows, the income tax rate goes up and, depending on how that deal is structured between the proportion that central government gets and the proportion that London gets, that will provide more money for the rest of the country, given that, last year, London had a fiscal net transfer of £49 billion to the rest of the UK economy, which we want to grow. We are comfortable with the idea that London should fund things outside of London, but we also think that you could invest more in London and grow that cake.
Secondly, is it stable? Is it a stable thing that we can potentially borrow against? Things that are very variable do not give you a stable income stream, which makes it very difficult to plan ahead or borrow against it. Is it a stable tax—that is, a tax that grows when the local economy grows?
Another important thing is the geographical remit. Can you point to where that tax is raised and spent? This is important. Again, if you are doing something like a transport project, it is important to see where the beneficiaries of that project are and, with the expenditure of the project, whether the project actually works.
Finally, it is about accountability. Can the public see the link between where the tax is raised, a decision taken by a mayor or a mayoral strategic authority, and the outcome? If it is clear that this tax came in, this was the decision taken on what to do with it and this is the outcome, the public can take a decision on whether the tax was right and the decision was right.
Given those tests, income tax and business rates make a lot of sense because you can tell where they are generated. With business rates, obviously, buildings do not move—they are physical—although new buildings can be built, generating new sources of business rates. VAT is quite difficult because, particularly with online expenditure and separating out income streams into retailers, it is sometimes difficult to see where the VAT is generated. A visitor levy is generated from hotels in a specific area; a decision is then taken and it can be spent in that specific area. Those are the ones that make sense.
We are at the start of the conversation. We do not expect to get to where New York and Tokyo are overnight, but moving a little further in that direction, with appropriate discussion as we go, seeing how this current wave of fiscal devolution or more autonomy plays out, is very important.
Lord Houchen of High Leven: I agree largely with what Howard said. The Government are concentrating on income tax and business rates because they are the easiest to follow, administer and manage. Start with the low-hanging fruit. There have been lots of tests up and down the country on business rate retention schemes as one-off, isolated examples. Howard gave a good example. We have a great example, which I have given already, at Teesworks on Teesside: SeAH. A huge amount of income is now being generated from business rates. This will mean that, over the next 15 to 20 years, it will net an extra £4 billion, which we can then put back into the local economy, so that works.
I know that we might come on to this but, with business rates—the Government are trying to tackle this—we have to be careful that we do not fall into the same position we fell into with local authorities. Sadly, in parts of the north of England, you have a business rate settlement with a local council, which works in the beginning, but, when you have post-industrial decline, large employers go bust and the business rate base falls, and you find that it creates a disincentive to the local authority to care any more. I have seen this at first hand. We are trying to attract major investors to the UK and it is nigh on impossible to make the local authority interested in meeting them or doing anything about it. They are bringing, say, £1 billion-worth of investment and 1,000 jobs, but the reality is that local councils are trying to manage their budgets. They think, “Even if we land this, because of the equalisation on business rates, we won’t see a penny of this investment. We have children and social services to deal with. We cannot dedicate the resource to it”.
What the Government need to consider around business rate retention—to be fair to them, they are giving serious consideration to this; I expect some protection in the model—is how to create a floor so that, five or 10 years down the line, mayoralties do not end up in the same place as local authorities: “We’re chasing investment but it’s not making a material difference to the local area because we’re playing catch-up on a drop”. This is an important point on devolution full stop, never mind fiscal devolution. Teesside is, sadly, a good example of this. I can point you to lots of private investment that we have made in Teesside and talk to you in my press releases about the thousands of jobs that are being created. That is all true but, at the stroke of a pen, when national insurance goes up or electricity prices go up because of regulation, the macroeconomics for a place such as Teesside always drown out the micro that we can affect. Even with those guards, we have to be careful that we do not quickly fall into a deficit.
On the income tax point—to be fair, London, Howard and Sadiq have been very vocal and hugely supportive here—equalisation, as a result, will be important as well. If you look at income tax, 3% of income tax in the Tees Valley will be equivalent to about £170 million a year. I believe that, in London, it is about £2.3 billion. If there is no level of equalisation, you are baking in left-behind areas, and great cities and successful areas such as London will continue to march ahead, leaving everybody else behind. Again, with equalisation, you are potentially creating inertia in organisations. They say, “Even if we don’t achieve, they’ll just re-equalise it and we’ll get a bit more money”, which is where the business rate system is with local authorities. Although they are the easiest to pick off, there are some nuances and unintended consequences that might not happen today but could easily happen in five years’ time if we are not careful.
I am hugely supportive of it; it is the right direction, and I agree with Howard that this is the start of a journey. People need to be aware—I believe this for lots of things around devolution—that, once you let that genie out of the bottle, it feels like a one-way street, politically speaking. It becomes difficult to take money away from local areas and take powers back. We are at a precipice here. You could easily see a place in 10, 15 or 20 years’ time where we do see real fiscal devolution—and not just on those things we have talked about. You could create systems, particularly with emerging technologies, on local sales taxes, corporation tax and income—all those things—where the barrier to entry of establishing local HMRCs is much less than it is today. That will be the direction of travel. This is not just a decision about the legislation today: you are setting out a direction of travel that might look very different to the one you think you are setting out on today. That is open for debate, but you have to be careful that, if you do not want that, now is the time to consider it.
The Chair: That leads on very well to Lord Prentis’s question.
Q119 Lord Prentis of Leeds: My question is about equalisation mechanisms. You have talked about the growth that comes from devolution, but, at the same time, the economic disparities between regions often lead to Governments implementing equalisation mechanisms. My question is centred on that. If fiscal devolution is designed to reward success, as you are saying, how worried should we be that there may be corresponding costs to underperformance?
Howard Dawber: The starting point here, on equalisation, should be that this is not a zero-sum game. The country does well when London does well, as well as the other way round. Our principle would be to equalise the starting point and start in neutral so that nowhere, including London, is any better or worse off on day one. Let places keep a meaningful share of the growth that they get for long enough that it makes a difference. If you equalise every penny away, you have reinvented the grant, just with extra steps to get to it. Things such as needs-based funding for core services—policing or the fire service—might be something that we look at separately, using a separate structure. Starting in neutral then incentivising growth, with a structure that prevents some of those core services being affected in the case of catastrophic downturn, is the right way to go. The principle of devolution is giving the regions the opportunity to encourage and allow that growth.
Lord Prentis of Leeds: How much equality do you think we need?
Howard Dawber: That is a very good question. This is one of those things where it is about equality of opportunity. I have seen previous measures where you disincentivise some areas from growing too much because there is no benefit to them to grow, as Lord Houchen said. This is also the sort of thing where, when new powers are introduced, you need a review period at some point to look at the impact before you take any further ones.
Lord Houchen of High Leven: This is an essential question because that is the element of regulation with which Parliament should be concerned. By allowing for growth on the upside, you do one of two things. You could allow for the downside, so do the Government then take a view that areas are allowed not to fail, perhaps, but to suffer and lose income as a result? I get the impression from decades of government policy that the Government are not going to do that.
Then the question becomes: what regulation are we putting in place to reduce the downside marginally in order to protect against failure but incentivise growth? Then you have to be very careful not to get into that cycle of there being areas that are not geared up to do this and say, “Actually, we’re quite happy with the equalisation from London. We’re getting more money. We don’t have to do anything. You know what? If we get a bit less money, there’ll be a review in five years’ time, and we’ll get more of a top-up. What we’ll do”—we see this up and down the country in local authorities—“is play politics and say that we have missed out and need more money because we have been left behind”.
To your second question, Howard has made his point, and London has always been very clear and supportive on this, but it depends on the philosophy. If you want to take a pure economic philosophy, as some in the Treasury and some pure economists do, you let each part of the country fail and succeed on its own terms. However, because of the interventions from Governments of both colours going back 50, 60 or 70 years, there have been unintended consequences in different parts of the country. If we are a single nation and we want to go forward as such, for places such as Teesside, which have been left behind by Governments of both colours in a post-industrial world—sadly, that is typical of the post-industrial story in the UK—there has to be a rebalancing, whether you call it levelling up, the northern powerhouse or whatever; I am sure that Andy Burnham, the Prime Minister, will come up with a term for it. We have to show that the powerhouse and the engine of London should not just help London succeed but provide support to the whole country. How do we provide opportunity in parts of the country that do not have it? As a great Prime Minister once said, talent is equally spread across the country, but opportunity is not. How can we use potential mechanisms through devolution to readdress that balance?
Howard Dawber: That goes to the crucial part of this and the whole debate on levelling up: if levelling up is about taking money from London and distributing it to the rest of the country, it will not work in the long term because London will lose out and London’s economic motor will cease to deliver that £49 billion of extra funding. It has to be an “and”; it has to be both. Allow regions to capture some of the benefits of growth but, at the same time, in London, for example, that growth will drive additional income for Treasury that can then be used to support projects in other parts of the country.
Lord Houchen of High Leven: I am sorry to interrupt but the reality is that you have to look at the proposed fiscal devolution rules and the proposals that will come out in more detail in the coming weeks, in conjunction with the devolution Act and the Infrastructure Act, which complement them. A big thing that can help with equalisation is the devolution of powers in regulation. We are now in a consultation period for other mayors to get the same call-in powers as the London Mayor for Housing and Infrastructure. The proposal from the consultation seems to be that some of those powers will come in on day one, while others will have to be earned once a spatial development strategy is in place.
For a place such as Teesside, that is a huge opportunity. It is not a financial mechanism, but we can build thousands of houses—not just houses: industrial estates and big developments, too—that have been blocked by local authorities and not been delivered for one reason or another. This will deliver jobs and economic growth for our area. We have to look at that fiscal devolution in line with the other powers. We are taking the view on Teesside through SILs, for example, that we do not think we need a SIL because, if we have things such as business rate retention, we are a driver of economic generation in the area. We have potential planning call-in powers so that we can drive thousands of houses or industrial development, so we can use the mechanisms of Section 278 or 106 to drive the same financial outcomes without placing additional costs on other developers in that area as well.
You have to look at this as a patchwork—I am sure that you are—in each individual area. As a package, if you are a proponent of devolution, what is being proposed across the Infrastructure Act and the devolution Act, as well as what is coming forward in fiscal devolution, is a huge step forward. It is probably the biggest step forward that we have seen in devolution since George Osborne established mayors in 2017.
Lord Prentis of Leeds: Yes, but one of the things that has bugged me throughout the investigation is the equalisation mechanism, which, as you are saying, has to be part of any move forward. What form do you think the equalisation mechanism should take under increased devolution?
Howard Dawber: We have some ideas. As I said, start neutral. Every area should get the same amount of money as it gets now. The difference is that it comes as a share of local tax instead of a grant, which is what the London Finance Commission proposed a few years ago. Every pound of tax that you get is matched by a pound less in grant, so nobody is worse off at the start; that includes London. It also answers the question of where the money for equalisation comes from, because you are not creating new money—you are changing the form it comes in.
Secondly, equalise the starting point, not the growth. Once you set the baseline, the place should keep the share of the extra tax that it generates above that level. That is a reward for growth. That does not have to be the same everywhere; the share could be different in different places.
Thirdly, you have to lock it in for long enough that it makes a significant difference. You will have to reset that baseline at some point because economies change and diverge. If you reset it every two or three years, you take the reward away, because, just as the investment starts paying off and people start to see the benefit of growth, it goes back to zero. Fixing it for about 10 years should be right, with reset dates fixed in advance so that you know where you are going. Then you as an entity, and any deals that you do with financial institutions and so on, know where you are. For example, on the Elizabeth line, we set up a specific mayoral community infrastructure levy and a business rate supplement to fund that partly. Both of those things were set out with a long period of payment so that we knew that there would be enough money to fund the project.
On your point about forces beyond your control, places should be protected from decisions that they do not control. If, for example, the Chancellor chose to make a significant national cut in income tax, that should not automatically reduce the shares that the mayor gets. You need to separate out what you have promised to regions from the decisions that you are taking at a national level.
As I said before, equalisation should be separated out from core public services. This should be about funds for growth and investment, not core services where there is a danger that, if there is a sudden huge change, they would be under threat. This has to be in the space of growth funding and capturing the benefits of growth.
The Chair: Lord Burns, Baroness Wheatcroft and Lord Newby would like to come in at this point.
Q120 Lord Burns: Can you speculate? If we had had these arrangements over the past 25 years, what would have been the impact on inequality between the regions?
Lord Houchen of High Leven: I will go first and take Teesside as a specific example. Had we had devolution at the same time as London, and had we had these fiscal arrangements in place—in particular, income tax and business rates; let us assume that there was a standard set as a starting point—over the following 16 or 17 years, we would see a significant decline in income. Again, this is not specific to Teesside, but Teesside is the second-largest chemical and processing cluster in the country behind the Humber. Look at what has happened to the chemical and processing industry over the last 25 years. Given the disproportionate amount of business rates that it pays to the local authority, what would have been retained by us would have devastated our finances because, for a lot of them, business rates are done on a contractor method, which is significantly higher than the standard method. You are talking about tens, if not hundreds, of millions of pounds that would, over that 15 or 16-year period, have been stripped out of that local area. This would have caused central government a fundamental problem: do they allow that to continue or do they step in and top it up? Therefore, what is the purpose of fiscal devolution if you are just going to step in every now and again to do it?
I would say—you may say, “Well, you would say this, Ben, because it was when you became mayor”—that, post the closure of the steelworks in Redcar in 2015, there was a lag of a few years. Then, with the regeneration of investment on that site, we have the numbers that show that, on that site alone, business rates will be in the region of £250 million to £300 million a year. This is a significant jump when you think of where it is in Redcar and east Cleveland, where the council tax base is only £70 million a year. It would fluctuate quite dramatically, but the problem with the fluctuations is: what do a Government, a local authority or a regional mayor do during those fluctuations?
To cut this short, it goes back to my previous answer on the macroeconomics against the microeconomics. It is the same with local authorities. You end up in a position where the Government end up being the backstop. If a council goes into special measures, the Government will bail it out. They are never going to allow these things to fail because, ultimately, the Treasury is the backstop. The interesting thing is: do they replicate a similar model, which opens up the same traps—I do not know the answer yet; we will find out—or do they try to come up with something more innovative, which might be slightly more risky but allows for downside as well as upside? Say Teesside does the same thing for the next 25 years: how does they deal with the ups and downs of that? The reality with politics is that they would just step in.
Howard Dawber: I have little to add to that, apart from that there is a logical endpoint here: starting to look at some of the structures that are in place in other countries with strong regional government, where there is some fiscal autonomy and you are not reliant on government always to come in and bail you out, in the same way as New York is. New York could, in theory, run out of money, and federal government has no constitutional requirement to step in and bail it out.
Lord Houchen of High Leven: But it does—or the governor does.
Howard Dawber: Yes, and you obviously have another layer of regional government in the States: you have cities and states. What that does is very much focus minds, in the decisions taken by mayors and governors, on the fact that there is no magical pot of money that will step in and fix things if they go wrong. That leads to very strong local accountability in places such as America.
If we had had the powers that are being offered now, leaving aside the overnight visitor levy, as well as the power to borrow against income tax, we could have saved the Government a lot of money by investing in some of the things that we saw as priorities for growing London’s economy 10 or 15 years ago. They have been sitting around as oven-ready projects, where the cost-benefit analysis is extremely strong, but central government has either not had the money to prioritise them or not been able to prioritise them. We would have been able to bring those projects forward earlier, which would have supported more growth and housing, and we would be in a better place now than we are.
We have undoubtedly, in the same way as Teesside has, benefited as a city from having a mayor. There is no doubt at all that, with the powers that we do have in Teesside, limited though they have been—without blowing smoke—those deals that have been done would not have been possible without that concentration of activity. Without having a Mayor of London, I do not think that we would have had the Elizabeth line. We probably would not have had the London Olympic Games. These things have happened because of the concentration of merit, being able to pull people together and make things happen—and, to a certain extent, being able to bring finance to the table to make them happen. Finance is a crucial part of it. This takes us further in that direction and gives us more room for manoeuvre to take on bigger projects.
Q121 Baroness Wheatcroft: I have a quick question that follows on from those questions. The ultimate form of devolution that we will get is still to be decided, but I wonder: are you, Howard, worried that the end result will be to penalise London because the drive may not lift all boats it is intended to lift—that is, the boats outside London?
Howard Dawber: I am confident, actually. I do not want to get political here, but the Tony Blair Labour Government brought in devolution for Scotland, Wales, Northern Ireland and London. Then there was a whole conversation about potentially devolving further powers to regions; that ended when the north-east voted not to do that, although there was some support around the country for that at the time.
We then had a period when you had those four, and London developed a little bit. Osborne came forward with the city deals, which were very clever, but, at the same time, they were pretty radical in terms of creating the next wave of mayors, of which Teesside is one, as well as Greater Manchester, Liverpool and so on. The way that was done, with the levelling-up message, was literally, “Let’s give areas of the country outside London the opportunity to be masters of their own destiny and to create activity that does not rely on national government making it happen”. That was the right message, I think.
Levelling up then became, “You can’t have both: you can’t have growth in London and growth in the regions. So we’re going to concentrate on the regions, not necessarily on London”. That is never going to work. We are, in a lot of ways, one economy. I was in California earlier this year. The distance between San Francisco and Los Angeles, which are very much intertwined economies, is considerably less. London to Teesside is about half the distance of San Francisco to Los Angeles. We have to stop thinking about cities as not being part of one economy with special characteristics. We all benefit from strong growth across the whole country. A head office in London is manufacturing things in other parts of the country, and vice versa. The growth of some of the tech businesses in Ben’s area or Manchester is partly because of their access to the ecosystem of London. You cannot have one without the other.
It has always been about “and”, rather than “instead of”. These measures are trying to enable all areas to grow, rather than capturing growth and redistributing it. That is the core of why this will be successful. Certainly, from our point of view, the messaging is very much that London has the same disadvantages that other regions have of having to go to the Treasury and central government to ask to do nearly everything it wants to do. This frees us up to do more and also to contribute to the Treasury and the rest of the country. I do not see this as a redistributive thing from London to other parts of the country.
Baroness Wheatcroft: Do you see the contribution that goes from London to the other areas of the country going up or down?
Howard Dawber: We want the fiscal transfer to go up, yes. Fundamentally, this is about letting us do what we are good at. London is a global economy. We have some extraordinarily fast-growing bits of our economy. We have some issues as well. Core to what we want to do is ensuring that, in the parts of London not very far from where we are sitting that are having a tough time and where people need better access to those opportunities, where we can grow our global economy and generate more money for the taxpayer, that money can then be spent in investment around the country. We are very happy to do so. We see it going up.
Lord Houchen of High Leven: May I quickly add to that? This answers both questions a bit more. If you are an optimist—I know that senior civil servants in MHCLG definitely believe this; I do not speak for the Prime Minister, but I believe that he believes this—the ultimate fallback for all this is democracy. If the transfer from London is too great and Londoners do not like it, they can vote in general elections. If they feel as though the mayor is not fighting their corner because they are allowing that transfer to happen, they can vote in mayoral elections. It is a little like the equalisation point. If things go down, we get less money, business cases pop and things start to happen, ultimately, directly elected mayors—I am sure that we will come on to talk about them—are hugely accountable to the public. The backstop should be going back to the public to ask for that mandate and to ask whether you have done a good job or a bad job, as well as what you propose to do about the situation you find yourself in.
Q122 Lord Newby: Mr Dawber talked about the starting point being the neutral position, which is what you are describing the current situation as. Lord Houchen said that there has been decades of underinvestment in the north. Presumably, if he were starting, it would not be the same neutral position as Mr Dawber’s, because he thinks that he has been disadvantaged up to now and would not want that to be baked into a long-term settlement. This is really a question to Lord Houchen: to what extent will you be lobbying for a different neutrality to the one for which Mr Dawber is looking?
Lord Houchen of High Leven: It hinges on the definition of “neutrality”. If neutrality is to equalise us with London, I will meet them half way: we can take £1.2 billion and they can take £1.2 billion, and we will all be happy. The reality is that, because the Government have committed to equalisation, this fiscal devolution plan will work only if we are a net beneficiary of a transfer from London. Otherwise, we get £170 million a year and it will get £2.3 billion; fundamentally, that does not work.
The clear signals from government are that we are not going to equalise to the extent that London gets the same as us, but there will be a discussion about how big that transfer should be. To some extent, that discussion has not happened because we do not really know the quantum or the mechanism that the Government are talking about. This will, I think, end up playing out—if we are being very parochial about this—after the 28th, when we all start fighting and saying, “I’ve worked this out and we’re getting only £200 million while Manchester is getting £2 billion and London is getting £2 billion”. There will be a big bunfight around trying to equalise some of that, which is where it will become very parochial to see what we can get out of it, in all honesty.
Howard Dawber: Yes. That is why we are saying that it should be about where we are now and that the growth should be what is incentivised. If you gave London all of the income tax generated in London, obviously, that would—
Lord Houchen of High Leven: Yes, but there has to be some transfer of income tax on day one from London to places such as Teesside. Otherwise, if your starting point is £2.3 billion and our starting point is £170 million, and we keep the upside, can a mathematician tell me how we will equalise that, given the disparity between the north and the south—never mind Teesside and central London? It is never going to happen.
Q123 The Chair: I read a piece in one of the papers this week about how London’s productivity growth since the financial crisis of 2008 has not been as big as it has in other parts of the country, whereas Manchester’s has probably exceeded it. A lot of this equalisation debate surely assumes that the economic challenges can be overcome in an equal way. Well, they cannot. Teesside obviously has much more of a problem transitioning to a knowledge and service economy, given its industrial history, than Manchester, which has a lot of pluses in that area. What does that make you think about the equalisation argument? You are not all starting from the same place.
Lord Houchen of High Leven: To reflect on other mayors—I can speak on his behalf because he has mentioned it publicly a few times—if you speak to Paul Bristow, the Mayor of Peterborough and Cambridgeshire, he is against the idea of equalisation. He thinks that it should be, in effect, a free-for-all, that you should keep what you generate and that, if you generate more, then all the best. I understand that argument; I just fundamentally cannot agree with it, being somebody who was born and raised in Teesside and lived there my whole life, who recognises that there are communities, as you have rightly said, Chair, that are disproportionately impacted by any macro shock. That will obviously be disproportionately felt in a place like Teesside compared to central London. That does not mean that London does not suffer, but the relative impact on a place of extreme poverty anyway and the issues that we have seen play out over the last few weeks are obviously going to be felt more in pockets.
That is where this ultimately becomes about a bit of centralisation, in an odd way. The MHCLG and Treasury will have almost to play a tune continuously to try to manage that with the politics in the background. While we are talking about the technical management of this, the politics in the background will always take over at some point, if that disparity becomes too great and there needs to be subsidy or a bailout. There will be a change of model that maybe says, “Sorry, London or Manchester, you have to give more money to south Yorkshire than you were doing before”. That is something that we are just going to have to manage from Administration to Administration.
Q124 Lord Carrington of Fulham: I want to move slightly away from equalisation and more towards democratic deficits. You have been talking—understandably, given where you both come from—about devolution going to mayors and strategic authorities. That is perfectly understandable, but it has some consequences for local authorities. How much devolution do you think should go to local authorities as opposed to strategic authorities?
Howard Dawber: This is where the slight difference of structure becomes important, because most of the mayoral authorities in the country have come together with boroughs, districts and city local authorities doing a deal to create a combined authority. London is on a different level; we are more like the Welsh or Scottish Assemblies and Parliament. There is a directly elected mayor, an assembly directly elected at the same time and we have a close working relationship with our local authorities. Indeed, we fund them for specific things. For example, we fund adult skills in local authorities, work with them on growth projects and so on. We fund local housing and transport projects, but they are not a part of the mayoral authority in the same way that they are in other regions.
The Cabinet paper and the process that we are particularly talking about at the moment is about devolution from national to regional government. There is a good argument, which we hear from all our local authorities in London, that they have very little room for manoeuvre in their funding right now. Things like the cost of adult social care and the cost of temporary accommodation have stretched their budgets to the point that they have very little room for anything discretionary. There is a good argument for a look at how local governments are funded. That can be a parallel process.
There is an opportunity in London’s case for a lot more closer collaboration with the local authorities in London. For example, we already work through sub-regional partnerships where the authorities of London come together in groups to deliver big projects. Certainly, as this plays out, we will be working with London Councils, which is the representative body of London authorities, very closely in what we can do to support its aspirations. However, at the moment, I do not think that very much is being suggested in terms of direct devolution that would affect London. Outside of London, there is a discussion about reorganisation as well, and we are watching that with interest.
Lord Houchen of High Leven: From this Government, and certainly a few years of the previous Government—so going back five or six years at least—the clear direction of policy at a political level and at the Civil Service Whitehall level is prioritisation of regional devolution rather than to local authorities. That is clear. As Howard said, there seems to be no clear indication that there will be some sort of two-tier devolution, with some given to regional mayors and some to local authorities.
We have already seen, for instance, in the last few weeks under this Administration, the Prime Minister’s push on homelessness. The obvious thing to do would be to provide that, in our area anyway, to the local authorities directly, because they have teams, they understand the problems in place and they often understand the individuals who impact on some of their social care provision. But the Government have given it to regional authorities.
What happens in reality is that we work closely with the local authorities and recognise that they are better placed to be able to deliver that provision. In effect, we end up being a passport funder of that, allowing them to deliver the provision. However, the clear indication, and for the foreseeable, is that it will be regional devolution rather than local authority devolution.
To quickly touch on your point on democratic deficit—I can say this because I also used to be a councillor for six or seven years before I was elected as mayor—certainly in my part of the world and in my experience, the vast majority of people could not name who their local councillor is. They certainly could not name who the leader of their local council is. They rarely engage with local authorities, largely because there are very few services delivered by local authorities anymore, beyond adult and children’s social care. For a number of the local authorities that come under the Tees Valley, more than 80% of their budgets goes fully on adult and children’s social care. Therefore, the idea that they can engage with the public properly and that they can deliver services properly outside of that remit does not exist.
I also think, maybe it is because we are the flavour of the month at the minute, because of different Administrations and because we now have a Prime Minister who was a mayor, that there is a huge amount of scrutiny of and accountability to a directly elected mayor. Turnout is marginally higher than it tends to be at local authority level, particularly in my part of the world, so you find a scrutiny element in that and a direct link to local people. The Government require us to run surveys annually looking at awareness of what the combined authority does, what the mayors do and so on. You find that name recognition, what the combined authority does, what the mayor is responsible for and what they have done is significantly higher at the mayoral level than it is when speaking about their own local authorities.
Therefore, I do not think that there is a democratic deficit. This is a genuinely open debate, but my view is that having, at a regional level, a directly elected mayor who is elected by the electorate on a four-year basis increases local government accountability to the electorate, who find it easier to understand and engage with a single person about what they do and what they do not do. That is where it gets a bit muddy, because often they think that you are responsible for things that you are not responsible for; either central government is, an arm’s-length government body is or a local council is. So there is still a huge education piece. I have been mayor for nearly 10 years, and I still find myself saying, “This is what we do; this is what we do not do”. You are often asked, “Where is your gold chain?” “I am not a ceremonial mayor. We do this”. “What does that mean? How is that different from that guy?” There is still a huge education piece to do with the public.
Lord Carrington of Fulham: I understand exactly what you are saying. Your point about people not being able to identify their local councillors or the leader of the local council, dare I say it, applies to mayors as well.
The Chair: And MPs.
Lord Carrington of Fulham: It possibly applies to the MP as well. I was interested that you were talking about adult social services, which is social care and SEND and all the rest of it. Those expenses are dictated by the central government to be spent by local councils, as I understand it. It is pretty much a requirement for councils to provide that, regardless of whatever else they can do. But, actually, what most people think about the local council is bin clearance and potholes, and neither of those are under the regional authority.
What worries me about the way you have been talking—I do not disagree with it; what you are saying is the way that the wind is blowing—is that we are moving towards regional government. If we are saying that strategic authorities will now be local councils working with the mayor, that eventually means the mayor dictating to the local councils, unless local councils have a veto on the mayor, which has been suggested to us by other evidence in the past. That came as a slight surprise to some local mayors, I suspect.
Is this the way this is all going? Ought we be worried that we are setting up regional government without any real thought about how that relates to local government and what the democratic deficit then becomes between the two? If the Mayor of London, for instance—I am a Londoner, I have lived in London all my life and I know London well—starts to have the powers of a regional strategic authority, in the way that perhaps Manchester has, to dictate to the local councils in London, you would have an enormously complicated problem because of the differences between the local councils across London, the nature of their populations, the nature of their economies, the nature of their tax bases and so on. Is this not a problem in devolution?
Howard Dawber: With respect, I do not think that that is where we are. I come back to how 93% of the money raised in London goes to central government, which chooses how to spend it. We are taking baby steps in the direction of creating a strong regional structure of mayors predominantly to take on some of the functions that otherwise would have been delivered by national government in those areas.
The crucial thing is to be clear about who is doing what. Obviously, defence, foreign affairs, national justice policy and things are all very clearly national-level responsibilities. There is a whole load of things that would make no sense to do at a regional level. There are some things—strategic economic activity, transport projects, planning and housing, I would argue—that naturally sit at a citywide or a regional level. There are some things, like your street collection, bin collection, local libraries and local parks, which naturally sit with the local level.
In this country, we do not have a written constitution, like that which, for example, the United States or Germany has, that sets out specifically who does what, so we are in a moment of change. However, there are things that are very clearly better done at different levels. The important thing is that we make sure that we are clear about what should be where and that, if we are choosing to move one from one level to another, we have very good reasons for doing that.
At the moment, there are proposals from the Government, not just on fiscal devolution but on transfer of responsibilities—for example, the idea that mayors should be responsible for leading on provision for young people not in employment, education and training in their area, which does sit very sensibly at a city level because people’s job opportunities or job prospects or their education does not stop at a borough boundary, particularly in London where boroughs are relatively small. It makes sense to have provision so that somebody from Tower Hamlets could get some training in Newham to go and get a job in Westminster. Those things sit sensibly—better, I would say—at a regional level than at a national level, but a local borough level would not be able to do the co-ordination that a mayor can do. It is about setting those things and not having the mayor step in as a surrogate Whitehall to control what local government does. They are separate but different levels of responsibility.
Lord Houchen of High Leven: I have just made a couple of notes there. I know that I am an outlier to all the mayors, certainly most of the mayors, in my view on this. I think that one of the reasons that devolution has been relatively successful since 2017, and is still very new and relatively immature compared to other institutions that we have, is that we are very narrow in our remit today. When we were set up in 2017, we were, in effect, politically accountable regional development agencies. They took the RDAs, made them slightly smaller into LEPs and then said, “Here is a directly elected mayor. Vote for who you want”.
One of the reasons that we have been quite successful, in my philosophy on the world, is that in the public sector in particular, or any particularly large organisation, you often find that those with broader powers do not do anything particularly well. In the first wave of devolution, what were mayors there to do? They were there for economic regeneration and jobs. What comes with that? Infrastructure, education and transport. In 2017, there was quite a narrow and defined remit that allowed us to invest in things like train stations and bus stations and airports and various other bits and pieces, and to supply a level of training against that.
You often find with a lot of these institutions, as we are now seeing with devolution, that it is driven by mayors and politicians and the centre. What else can we give these organisations? Suddenly, probably in 2028 as the Government have signalled—by the end of the Parliament—all mayors will be responsible for police and fire. Suddenly, you are broadening the organisation to not be an economic regeneration arm.
People will make the excuse that, if you want to attract investment, you need to reduce crime, so we need control of crime. They also say that if we are going to get people back into work, we need control over health because we need healthy people to go into the workforce. Then they say that, if we need people in the workforce, we need to train them, so we need control over the DWP. It goes on and on.
I have said—I say this to my fellow mayors, to the MHCLG and the Treasury all the time—“Stop giving us more power; just give us deeper powers over what we already have control over”. We should have things like some of the education stuff, absolutely. Housing and planning sit within that economic regeneration element. However, for things like health and police and fire and these other things, you will end up creating, funnily enough, pseudo large-scale local authorities.
I use Teesside as a great example. We were Teesside County Council in 1967, then we became Cleveland, then we went unitary as part of the first wave in the mid-1990s and now we have a regional authority that is getting more and more control. Each local authority is not sustainable in its own right. Hartlepool, for instance, has a population of fewer than 100,000 people. Darlington has not much more than 100,000 people. The Government have already said that a local authority should be at least 350,000 or ideally 500,000 or 700,000. The natural conclusion of that is that, at some point over the next period of time, you find that the Government accidentally turn regional mayors into large-scale local authorities. That is a possibility.
To be clear, I do not think that that is the Government’s intention, but you could see a world, for example, in which the Government talk to us about taking responsibility over public health so that it sits with local authorities. It used to be the mantra with devolution that we are taking power away from the centre and giving it back to the regions. There are just a few indications of powers that were with local authorities now going up to regional authorities. I think that we should safeguard against that. The more that we can pull down from the centre, the better. I do not think that Whitehall has a clue what goes on in Teesside, so it can never make decisions properly for us, but you are starting to see that shift upwards and that will have an impact on local government reorganisation and what happens in the future.
Lord Carrington of Fulham: You talk about mayors and regional authorities taking over control of housing. I can understand strategic housing planning and zoning or whatever, but housing is archetypally a local issue. It is about people who do not want their park built over for essential housing. It is for people who want the factory rather than more housing. That is something that is absolutely local authority, but you are not suggesting that, are you?
Howard Dawber: I am not suggesting that, no. In London we have a strategic responsibility for housing. We get a grant from central government to support local authorities to develop housing projects. We also take an active role in supporting local authorities. When faced, for example, with a very big planning application that they do not have the bandwidth to manage, we have a structure that will support that. We have planning powers, which are now being offered to the other mayors, where we take the role that, outside London, the Secretary of State takes. If there is a big project, they are able to call in a project or overturn a decision of a local authority; we have that power and the Secretary of State also has that power in London.
In planning, we look at about 200 big schemes a year. Many of those are housing related. We have a view; we intervene. Actually, we intervene in fewer than half of those, but we have a policy for the whole of London that then informs how local authorities act. We have a strategic planning policy and a strategic housing policy. However, you are right that, at local level, the detailed decisions are for local authorities to take.
Lord Houchen of High Leven: That acts very differently outside of London. I will not profess to understand the detail, but you have a local planning process, whereas the Government are proposing going back to, in effect, spatial plans. Spatial development strategies are the responsibility of the combined authority to adopt. We have to set out, at a relatively high level, what is appropriate for development across the whole region. Once that is adopted, the local authorities must adhere to that document when setting their local plans.
The only other powers that we have—this is subject to consultation, but it looks like it is coming—are some of the call-in powers that London has. If a local authority was to reject 500 homes in Darlington, the mayor will have the ability to call in and potentially overturn that decision.
Q125 Baroness Wheatcroft: My question leads on from that. I am intrigued by the amount of constructive conflict that there might be between local authorities and strategic authorities. The Local Government Association thinks that it is almost inevitable that organisational boundaries should not always be tightly defined and that there should be flexibility in some areas. Is that possible or will it be a source of continuing conflict if boundaries are blurred?
Lord Houchen of High Leven: I think that it will be a continuous source of conflict, depending on the Administration’s view at the time. There will always be a natural tension where, if devolution continues to be a perceived success, which the MHCLG certainly thinks it is, they will use it to think, “Well, councils are in a difficult spot at the minute; we could just give this to regions instead”. That is my point that I made to Lord Carrington: we need to guard against the moving-up of powers away from local communities and keep our eye on the powers coming down from central government.
Howard Dawber: In London we are set up differently. We have a very much separate mayor and local authorities. What has happened over the last 26 years since the Mayor of London was set up is a whole series of productive structures to work with local authorities on. A good example in my own responsibility is that, last year, we developed an economic growth plan for London and we did that jointly with the local councils, with London Councils. They were involved in the questions that we asked, the direction of travel, the content and all the stakeholder meetings that we came up with. We ended up with a plan that was not only our policy but jointly the policy of all the local authorities of London that everybody bought into. That has made it a lot easier to drive that policy forward, because everybody knows where we are going and we are heading in the same direction.
I think that London is a bit of a model here. Even if you have completely separate structures, the collaboration and the positive benefits of collaboration—actually getting things done—is built in, even if not structurally built into the system. We well clearly not be able to deliver some of the additional responsibilities that we have without close collaboration with the boroughs, either because they are the primary delivery partner or because they have a particular different view. We have a patchwork of political leadership now across London, for example, but they have all been in to see us to talk about how they can deliver some of their specific policy ideas, after election in May, within the context of what we are trying to do. Therefore, I am not as worried about the conflict.
Where people have very different views politically, and very different agendas based on local issues, that is democracy. There will inevitably be some arguments, but that is part of having a democratic structure in the same way that some local authorities have a very different political will to national government. That is reliant on mayors and local authorities to argue out, when that happens.
Baroness Wheatcroft: One area that is always guaranteed to cause problems, as Lord Carrington suggested, is planning. Was it a positive move or potentially quite dangerous when Andy Burnham said that powers will be given to mayors to override local authorities on planning issues?
Howard Dawber: We have gained those powers in two chunks. When London first had a mayor, we had a negative planning power, so we were able to say no to things that local authorities said yes to, if they were not in the strategic interest of London. Since 2008, we have had the positive power, which is to be able to say yes to things that local authorities have said no to. In practice, because we set a spatial plan for London, the London Plan—the new edition was published just recently in draft, and is smaller than the previous one because we have concentrated on things where we think that we need to have an input—where local authorities are already doing things, we do not need to have an input. Where national government has already set policy, we do not an input. Therefore, it is a much smaller plan than the previous ones. That plan sets an overall agenda for London within which local authorities set their own spatial plans and take individual decisions.
That structure is working well. It is clear what we are trying to achieve and what our concerns are in the context of supporting the whole of London, and it is clear that some local authorities have particular views about particular areas and so on. The separation of who is doing what has worked well.
Our example, including the things where it has not worked quite as well as it might have done, is a good example for the other mayoral strategic authorities to look at and follow. The principle is already established in London. As I said, outside of London the Secretary of State has the power to come in from Whitehall and say to Teesside, “You want to build this thing? No”. It is extraordinary that it should be the Secretary of State taking that decision rather than a regionally active mayor, who is much more accountable, with a much better understanding of what happens in their region.
Baroness Wheatcroft: Can I ask Ben whether you anticipate it being an issue at all?
Lord Houchen of High Leven: I do slightly. Devolution started very differently in the rest of the country. When Government set out the devolution deals, as the public would be surprised to hear, most of the decisions that mayors took required the approval of the majority of their local authorities. People think that mayors sit in a quiet room and decree: “This will happen. That will happen”. It does not work like that. By definition, the Government set up the model to be as collegiate as possible.
What has happened through subsequent iterations of devolution is that it has become less collegiate. For example, when setting budgets you have to have unanimity across every council. That seemed a bit extreme because—not in Teesside, thankfully, and they will remain nameless because it seems unfair that they are not here—other combined authorities found that certain councils were, in effect, ransoming everybody else by holding out. Therefore, recently the Government have changed that rule to say that you do not need unanimity anymore; you just need a majority decision. That makes it a bit easier as it seems like a sensible middle ground.
However, subsequent to that, we have seen that a lot of the new rules are no longer what we call combined authority rules, which require the permission of the mayor with a supporting majority of the Cabinet, which is made up of the local authority leaders. What you now see through the Government are mayoral powers, where you do not have to deal with the local authorities as the mayor can do what they want. You are getting more of that London-style mechanism where more executive power being vested in the mayor. That will take some adjustment from both mayors and local authorities in how they work. Howard is right that we should all take a steer from London about how it has managed those informal relationships to make sure that we continue to work with local authorities.
Look at Teesside specifically on planning: there are lots of houses on Teesside that should have been approved in sensible places. They were fully recommended by the planners and they were in sensible spots. They have been rejected, and each one costs the council on appeal, because they all get approved anyway. We will see some friction, because I definitely intend to use those powers to charge economic growth. That will disgruntle officers in local authorities as well as politicians.
To be fair, I was the mayor who was lobbying the hardest on these planning powers. It came back to democracy. Again, I would make the argument that people do not know who sits on the planning committee and that they vote for all sorts of different reasons. I am quite happy to make the tough decisions and, if people do not like it, they will not vote for me next time around. However, in the round, people will reward people for being proactive, optimistic and trying to instigate some economic growth in areas that have not had it for decades.
Howard Dawber: Can I just say something on the different structures? Local authorities are not formally part of the London structure, but they are all on speed dial. It is Tuesday and I have spoken to two local authority leaders this week. Last week, I saw four leaders or people responsible for economic development. I do not think that that was happening with national government when there was no mayor. That level of engagement and the very rapid response to things that are happening on the ground is one of the features of having strong regional government.
Q126 Lord Burns: Lord Houchen, do you take these decisions on your own? What checks and balances are in the process and accountability for the decision that you take, when you do not necessarily need the support of your local authorities?
Lord Houchen of High Leven: The recommendation, subject to the consultation, seems to be that—for example, in planning—the mayor will make the decision to call in a power from a local authority or potentially to overturn a decision. There are three main powers that we get on day one. One is that any application over 150 units, like in the London order, has to be referred to the mayor. The mayor can choose to do nothing, leave it to the local authority, have written representations, direct them to reject it or take it off the council and determine it themselves. That is the same for any development over 15,000 square metres, which I think is the outer London limits. That can be industrial or commercial. They are now consulting on a back-end power, which is that any development over 50 units gets determined by the local authority. However, if the planning committee rejects that application before it can issue the decision notice, it has to refer it to the mayor, who could potentially call it in. London has had this power only since May, so it is relatively new in London as well.
They are actually saying that that process will be done only by written representations. There will be no right for a planning applicant or the public to attend an open meeting, as they sometimes do with planning committees or an appeal. That could change through the consultation. One thing that I would say from the proposals is that, ultimately, any mayor still has to act within the law. You are, in effect, taking a decision on behalf of a planning authority, but you still have to have a robust reason for that decision. If I were to reject an application, the applicant could still appeal against that decision. If I were going to an inspectorate, I would have to have the evidence base to justify against the National Planning Policy Framework, the local plan and the strategic priorities. We would still need a valid planning reason.
Funnily enough, what is happening at rapid pace at the minute—in looking to London and copying what London has done—is that mechanisms are being put in place to make sure that there is a robust audit trail. Therefore, while it is a mayoral decision, that decision is sound and within the reasonableness barrier, so that if it was challenged, either under JR or appeal, it is a robust decision. Those mechanisms need to be put in place. There is no standard mechanism, so you may find that different mayors have different standards, which may be a consideration for government to equalise and use the London model, which is an effective model for calling in. However, at the minute you might find different standards across the patch to be able to meet that threshold and make sure that it is a reasonable decision.
Q127 Lord Razzall: The two of you—in one case an existing mayor and, in another, an existing deputy mayor—are in a structure that is, in London’s case, established a long time and, in your case, established for quite a long time now. I want to move on to democratic accountability. You touched on that on planning, and I understand your answers to the question. However, first, is it clear in your authorities what the democratic accountability is between the mayor and the strategic authority—not the local authorities but the strategic authority? It seems to me that there is a slight fuzziness in everybody’s mind as to what the mayor can do. You have explained that quite clearly on planning but, in other areas where powers are given, what is the interrelationship between the mayor and the strategic authority?
You touched in one of your earlier answers on the question of democratic accountability for local authorities. I understand that you two have a different structure where you already have an existing mayoralty and a strategic authority but, in large areas of the country, even now—more so after Angela Rayner’s recent announcement—there is either a directly elected mayor who has no agreed authority, so what are they in charge of, or no directly elected mayor at all. How do you envisage democratic accountability there for local authorities, at all the different levels down?
Lord Houchen of High Leven: From a combined authority perspective, the legislation is not great on devolution because there are so many cross-referrals to London orders and statutory instruments that get imposed. If you are trying to read the legislation, it is quite complicated. We went through a review for various reasons in the Tees Valley Combined Authority and one of the recommendations for that review was for the Government to clarify the legislation and make it much clearer for people to understand. If you are a lawyer by training or you choose to spend the time to try to understand it, it can be understood. It is just not easily interpreted.
The rules between what a mayor can do and what is a decision of the combined authority are very clear, if you can read the legislation. There is no ambiguity between what is a mayoral decision and what is a combined authority decision. We are just seeing a proliferation now of more mayoral decisions than there are combined authority decisions, but it is clear where that remit currently lies. As I say, some more is now coming away from local authorities and being raised up.
Interestingly, outside of those organisations or people who engage with the combined authority, you still have a huge number of back-bench councillors who are not in the administration in their own local council, who find it difficult to get their head around what the combined authority does and is, even today, and what their leader is responsible for compared to what the combined authority is responsible for.
As a combined authority model, everybody appointed to any of the committees at a combined authority is an appointment by a local authority. You often find that there is a need for intensive training and induction for councillors to understand that they have a legal responsibility to the combined authority in their role as an audit committee member or a scrutiny member, which they still do not quite understand. They think to some extent—not all, but a significant number—that they are almost there to lobby for their local authority and they do not necessarily understand that we are actually all part of this together.
Lord Razzall: That is not true in London, of course.
Howard Dawber: No, London is set up in a different way. We are set up with a London Assembly. The Greater London Authority has the mayor as the executive and the assembly as the scrutiny body. The assembly has no legislative powers; it is a scrutiny body. It does have the power to overturn the mayor’s budget with a two-thirds majority, but it is able to summon the mayor, deputy mayors and other members of the executive to answer questions. In the same way as a Select Committee, they can have inquiries and propose things. One of the differences between Sadiq and other mayors is that he has to go and sit in front of the assembly regularly to spend the whole afternoon answering questions. They are extremely robust sessions and they are televised.
Lord Houchen of High Leven: We have to do that now.
Howard Dawber: Yes, so you have moved on to that.
Lord Houchen of High Leven: Yes, that is brand new in the last 12 or 18 months.
Howard Dawber: That is where the primary scrutiny lies, plus the electoral cycle of four years and the mayor being directly elected. It is very clear where the buck stops, because the mayor takes the decisions personally. For most of the mayor’s decisions in the areas that he has responsibility for, it is very clear, if it is a decision that you do not like, who has taken it. That can then be very easily traced back and challenged. That is the London structure.
Lord Razzall: You said in one of your earlier answers that the way the Government were going was for devolution of fiscal responsibility to mayors and strategic authorities, not to local authorities. How will that work in areas where there is no mayor and strategic authority?
Lord Houchen of High Leven: It is a good question. Ever since George Osborne started devolution in 2016, his original direction of travel, when he was approaching councils, was to expect local authorities to come together voluntarily to government and say, “We agree that we want to pursue this” and make it a bottom-up process.
The reality—and I have been on record saying this before—is if, 10 years on, areas have not agreed a position on devolution, it will be very tough to do that. There are only two ways you do it. First, you can make it financially so difficult for local authorities that they are forced into just coming together. That has happened on a couple of occasions, where they feel like they are missing out. Secondly, you can force areas to do it. I thought that this Government might take that step, because they have talked about wanting mayors to cover the whole of the country. However, what seems to have been published recently is that they are still potentially pursuing four different tiers, so that you have a tier 1 and a tier 2, which are combined authorities with very limited powers, combined authorities with some more powers and then combined authorities with the mayor. They have different relationships and they interact with Ministers and government very differently.
I think that that is unhelpful from a democratic accountability point of view, because it creates an environment where local authority leaders and other politicians can come together and there is not that focus of accountability; it is just an abstract body. The great thing about mayors, whether you like them or not, as Howard has said, is that, if somebody is making a decision, and they have often not made the decision by themselves but with the support of local authorities, the mayor takes responsibility for that decision. That gives a stronger level of accountability, because of the high-profile nature of those mayors.
My view is that, if you want devolution to work, it has to cover everywhere and therefore the Government should be imposing it. That is only from the position that you want devolution. If you do not want devolution and we are doing what we are doing at the minute, you will have areas that continue to succeed, because there is a clear and obvious presence that Governments and civil servants are prioritising regional mayors, with favourability on funding without having to bid for funding, with access to government and access to Ministers. Therefore, unless they force it, there will be areas of the country that fall behind naturally, because local politics often cannot agree to a deal. That comes back not entirely to me, but to some other mayors as well.
I know that in the first wave of devolution when I was elected—maybe I should have said this at the beginning—I was elected by accident. I was not supposed to win in 2017. I was very much an outsider and it was pre red wall, and so on. When I ended up winning, and particularly when I ended up winning again in 2021 in what was a traditionally very Labour area, other parts of the country noticed that. Again, I will not name areas of the country, but you would find certain political parties that were in favour of devolution but thought, “Hang on, if I look at the maths of this, this will probably be a Tory mayor. If it is a Tory mayor and it is anything like Teesside, the incumbency is very big in mayoralties compared to other elected positions. Therefore, we may get a Tory mayor; look at what happened on Teesside”.
If you go back to 2021, not only did we win as the Conservative Party, but we took one of the councils; we were second largest and very close to taking a second council. We then had two independent councils and one Labour council. A lot of that was attributed to the regional model. A lot of areas have retreated as a result, because they are scared of the political consequences of mayors. This means that, irrespective of whether it is fiscally sound to agree to having a mayor, the politics will always get in the way in some areas. Therefore, my view is that you either allow for the two tiers to create disparity or the Government need to step in and impose it. That is not a question that I know the answer to.
Lord Razzall: If they do not, areas without mayors will start to lose out.
Lord Houchen of High Leven: Yes, absolutely.
Howard Dawber: I do not want to get into the politics of that but, rather than making it difficult for areas that do not have a mayor and making it more and more of a disadvantage, offering them the positive advantages of a mayoral structure is the way to go. I understand why George Osborne originally and later this Government have wanted to get local buy-in and that sense that this is something that people come together to positively create, rather than trying to impose it from the top down. That has been the right way to start.
Lord Houchen of High Leven: Very quickly, whether it is negative or phrased as, “Here is an opportunity”, the reality is that, if you have a mayor, you get X. If you do not have a mayor, you might get some, but it is X minus whatever that is. You are not in parity when having a mayoral combined authority. Otherwise, to be frank, if all areas could get a massive financial uplift without having a mayor, local authorities would take that option.
Q128 Baroness Alexander of Cleveden: It is an appropriate segue into the challenges of local government reorganisation. A week ago, when we were sitting here, the Government halted the plans for reorganising local government in England, obviously on the basis of legal advice. What are the implications of that decision, particularly from the perspective of English devolution and the speed with which that is advanced?
Howard Dawber: I do not want to get, as you might imagine, into the details of the decision to put that on pause. What is happening with the wider local government reorganisation issues should not hold back devolution to the existing mayoral structures. It should not be that you cannot have the things that clearly will help benefit your areas and lead to better economic growth, where it is devolution from the centre to mayors, until the rest of the country is caught up. The two things are separate: there is an organisational question of the areas that do not currently have the mayors and there is a question of devolution. I do not want to see the devolution agenda held back by concerns over the detail of reorganisation.
Lord Houchen of High Leven: The reality is that, even including under the previous Government, where areas wanted devolution—North Yorkshire is a great example—they could have the devolution deal only if they went through local government reorganisation. I will be honest that I do not know what the current Government’s policy is on that. However, I know that it has been a long-held Whitehall view that it does not like—from what I hear—the county system. In moving to a unitary system, it sees devolution as an opportunity for that reorganisation now.
Given what the Secretary of State has done in cancelling reorganisation and on whether that is a move away from that policy, I agree with Howard: if you want more devolution, the only way that you will get that now, particularly given the upheaval of the reorganisation or the cancellation of it, is if you allow areas to come together in their existing models for devolution. Unless somebody can educate me, I do not think there is any clarity on a change of policy. That policy has been in place certainly since 2020 under the previous Government and ever since, so it must accompany reorganisation.
Baroness Alexander of Cleveden: In the situation where we find ourselves, continuing to have multiple layers rather than a unitary authority under the mayoral and combined authority structures should that cause us any anxiety.
Howard Dawber: I would not go as far as to say that it should not cause us anxiety. I will put my previous hat on and talk about the group that I work with now, in terms of businesses. If you are a business and you are looking at doing business across the UK, having to sit down and get your head around the different tiers of government and who is responsible for what can be a bit of a headache. I do understand the desire for a lot of people to have more of a common system across the country. My point was that the devolution proposals to the existing MSAs that have been set up should not be held back on the basis of waiting for a perfect system across the rest of the country, particularly for areas that are not covered by MSAs.
Lord Houchen of High Leven: Going back to some of the concerns that Lord Carrington raised, where you allow for new deals to manifest themselves with existing structures, you are more at risk of that conversation about raising powers up from the district and the county than you would be if there was a simple unitary with a combined authority or strategic authority on top.
Q129 Lord Reid of Cardowan: Thank you, gentlemen, for your contribution. It has been fascinating, particularly this aspect you mentioned about the tendency to broaden responsibilities and the proportionate decrease in capability that might result from that. I do not think that we have had that before.
What we have had before, which you touched on today, is the problem of equalisation. I do not blame you for this, because no other witnesses that we have had has given us a mechanism for doing it. However, today you added another dimension, which was a difference in principle: either you start from the status quo ante or you accept that you cannot start from the status quo ante. That is a problem with the principle, as well. Declaration: I am probably on the side of Ben; there is an old saying in Scotland that the rich get richer and the poor get children. That applies to local authorities as well, if they start unequally.
I want to ask you about one dimension of this that has not featured so far, which is on the inequalities in skills and capabilities between regional authorities and, in particular, between regional authorities and local government. It is not just a matter that one might have a better track record economically but, almost as an adjunct of that, there will have been a generation of skills and capabilities within the regional authorities. On that assumption, what needs to be done to give even an equality of opportunity, whether you start from a status quo ante or the other way, as regards the differences between regional authorities?
Secondly, will there be a problem with local governments? Do they have the capabilities to tackle the new phase of devolution that will be occurring above them but will have implications for them? Are they likely to lose those skills to the regional authority?
Lord Houchen of High Leven: I will give the Teesside context on this. When I was first elected, Teesside was in a very difficult place and it continues to deal with trials and tribulations. The reason Teesside got the devolution deal was twofold. First, after the closure of the steelworks in 2015, Lord Heseltine wrote his review called Tees Valley: Opportunity Unlimited where, in his typical Heseltine fashion, he was given a report to do on the steelworks and ended up doing a report on the region. The key line in that whole report, which still sticks with everybody in my organisation because we make sure it sticks, is that he said that Teesside is a place that you go through to get somewhere. That led to him recommending his tried and tested model of development corporations being devolved to mayors. We were the first organisation outside of London to get that power, specifically because of the steelworks and so on.
We sat there thinking that we are at a low ebb. We have 3,500 people out of work in the steelworks and troubles in the chemical and processing industry. We can see what is happening in the macro economy and we have some limited powers, but we have this money. How do we compete? How do we compete not just within local authorities to make sure we get the most out of it? It is not even about how we compete with Manchester or London, but about the types of investments that will come to a place like Teesside, which are energy-intensive industries, large in land use, from power generation to renewables to chemicals and processing, now potentially to data centres. How do we compete on that level?
What we did not do is throw the baby out with the bathwater. We took what Teesside is about. It is about all those industries. One of the reasons that we are helping BP and Equinor to build a £4 billion carbon capture and storage facility is not just because of the natural assets of having the land, having the North Sea and having the industrial cluster; at the time, it was skills based. If you go back to Teesside, as I am sure Lord Young and others will be able to attest, we have been creating hydrogen and catching carbon since the 1950s and 1960s, but doing it on that scale and using that skill set. That meant that, with the greatest respect to Sadiq Khan, when he was commissioning hydrogen buses, the reality was the hydrogen was going to come from a place like Teesside. The decarbonisation of Manchester was probably going to be decarbonised power generated in places like Teesside or the Humber or in Grangemouth or places like Scotland.
Therefore, we were able to ask what we can do uniquely that places like Manchester, Birmingham and London cannot. It is a repositioning of that industrial heritage to pivot, not to move away from it, but to create a platform that uses the industrial heritage that we had and made it capable for the 21st century. We found that we have been very successful at that.
Going back to the original question of fiscal devolution, fiscal devolution will add more competition. It creates competition within the public sector. I look at what Manchester is doing. I look at what Kim McGuinness is doing in Newcastle, just down the road. You are looking for that edge. What are they concentrating on? Are we missing something? Could we do something different that means that we can capture investment that they cannot capture? It goes to that point that you said, Lord Reid: if we can keep it narrow on regeneration, economic growth and how we help our community succeed, part of the question is what skill sets they already have.
We have an ageing population in Teesside and lots of people, in the steelworks, for instance, who were on £70,000 or £80,000 a year in an economy that had an average wage of £29,000 a year. We would say, and the Government at the time would say, that there were huge successes, because everybody who lost their jobs in the steelworks, both directly and indirectly, either started their own business or found a job. But what was hidden in those numbers was that all those people were significantly underemployed. They were not on £70,000 or £80,000 any more; they were in insecure service sector jobs, maybe on zero-hours contracts or on £20,000 or £35,000 a year.
There are hidden mechanisms that devolution has helped us address, because we recognise that underskilling. When international investors come to Teesside, which they invariably do—again largely because you have a megaphone of a mayor who business resonates with—and they talk about skills, we are specific about the investments that we are trying to get. We will not become the financial centre of the UK, nor will London ever compete with us on our industrial cluster that we are continuing to build. We talk about data centres, for instance; London is doing incredibly well with data centres. The power restraints happening in London mean that it will not happen. Where will that grow? It will grow in Teesside. They worry about where we find the people. Where do we find the high-voltage electrical engineers who will come and fit this thing out? Where are the construction companies that will build it? That is what Teesside has done for decades and decades, so we are able to pivot successfully, but that comes with control over devolution and education budgets, particularly on a place like the former steelworks site.
The biggest thing that the Government ever did for us, which meant that the whole thing stacks up financially, was business rate retention. Under Philip Hammond in 2018, we got a special economic area, which meant that we retained all business rates generated on that site for 25 years. It was dead easy to do because there was no economic activity on that site so the baselines did not matter. By the end of this decade, as I said before, we will be in receipt, as a regional authority separate from the local authority share, of somewhere between £250 million and £300 million a year, which we can pump back into the region. That is exponential. It is probably equal to the entire council tax take of the whole of the local authorities in my area. What you can then do with retraining, economic growth and infrastructure starts to close the gap.
Having said all that and going full circle to finish here, we have made huge progress. However, when the Government or the Treasury make big macro decisions, a lot of the jobs that we get are wiped out somewhere else. When we are trying to attract big international investors, it invariably requires engagement with central government. Take Net Zero Teesside, for instance: it is building a £4 billion carbon capture plant, but it needed a CfD from government, so there is huge lobbying of government and those things are contingent on each other. Devolution cannot really work while there is so much centralised power, because you are always parochially at the whim of big macro issues over which you have no control.
Lord Reid of Cardowan: I obviously set you off there.
Lord Houchen of High Leven: Sorry.
Lord Reid of Cardowan: No, it is very inspiring.
Lord Houchen of High Leven: I am very aware of time as well, but can keep going if you want.
Lord Reid of Cardowan: I will go back to my question. That was very interesting, but what I want to know is—I take it from what you are saying that you do not fear it—whether there will be an inequality at the beginning, not only in terms of money but in terms of capacity between the regional authorities. Secondly, some local authorities may not be prepared for this at all; they have not done the thinking that you have done at the regional level. Would either of those anxieties be legitimate?
Lord Houchen of High Leven: Sorry to go off on a tangent, but yes—unless there is a massive equalisation, we will get less money than central London and there will be a disparity within that. I do not think that a Government will ever bridge that gap, so we have to deal with that. It is true to say that there are capabilities that we have as a combined authority that we know that, commercially, others do not have, but we also know that we have an organisation of 160 people. South Yorkshire is up to 450 or 500, so there are inbuilt capability issues, where you will see disparity on how to spend that money and how much progress you can make at any one time. Then you still have London, which is years ahead, which will continue to moderate.
Howard Dawber: Yes, you are right. There is a disparity because everything has been set up at different times, and areas have different population levels and are different geographical areas. Effectively, the mayoral operation in London is the size of not even the smallest government department; we are considerably larger than some government departments in terms of the amount of money we spend and the amount of people we have. If you include Transport for London, the police and fire, we are a substantial organisation. That means that we have substantial capability as well and are able to take on some of the additional things that the Government are talking to us about.
We also have a responsibility to work with the other mayoral strategic authorities, which we are, at officer level as well as a political level, to be honest, to help them to develop some of those capabilities as they take on new things. One of the most exciting things about devolution is that, quite apart from what the national Government are doing, we are collaborating. We are collaborating cross-border. We are collaborating cross-party on things that we know will be supportive of other things. We are not in competition with Teesside. If I am ever on a mission abroad and somebody says to me, “What we really need is to get into some of the environmental and energy industries that Ben has in his area”, I say, “Here is Ben’s phone number. Talk to Ben, because that is where you want to go. Let me know how you get on”.
The collaboration that is happening without involving national government is some of the most exciting stuff of devolution, peer to peer. Our competition is New York, Dubai and Singapore, and we are still a smaller, less powerful and less well-resourced operation than our international competitors are. That is where we look—at how we can compete on an international level. London continues doing what London does best, which is to grow that economic motor for the rest of the country and to be supportive of the rest of the country, rather than in competition with it.
The Chair: Thank you very much for a very interesting session.