Oral evidence - The Union and devolution

Members present

Lord Lang of Monkton (Chairman)

Lord Cullen of Whitekirk

Lord Hunt of Wirral

Lord Judge

Lord Lester of Herne Hill

Lord Maclennan of Rogart

Lord MacGregor of Pulham Market

Lord Morgan

Lord Norton of Louth

Baroness Taylor of Bolton

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Examination of Witnesses

Stephen Herring, Head of Taxation, Institute of Directors, and Martin McTague, National Policy Vice Chairman, Federation of Small Businesses

Q180 The Chairman: Welcome, Mr Herring and Mr McTague. We are particularly grateful to you for coming, with your specialist interest in taxation matters and the relationship between that and business. It is one of the areas that we regard as important in the rather broad study we are doing of the relationship between the union of the United Kingdom and its devolved institutions. We are very grateful to you for being available. We have the best part of an hour, so I will dive straight into the questions. What are the most important elements of the union from a business perspective?

Stephen Herring: The UK has a market of 60-odd million people. We are an island, or an island and part of another island, and in most respects the interests of business and economic growth will be in the same direction. It is wrong to look upon each national region as economically distinct from one another, the whole can be better than the sum of the parts for most issues that affect business. That is not to say that there is not some tweaking necessary, and that some local, regional and city focuses are not appropriate, but for most purposes the UK is small enough not to need a whole range of different policies for businesses in different parts of the country

The Chairman: Mr McTague, you represent the Federation of Small Businesses.

Martin McTague: Yes, which means there is massive variation across our almost 200,000 members. The best way of summarising it is to say that our members are largely more pragmatic than ideological about the issue. It tends to vary depending on the kind of businesses they are. Some trade cross-border and would probably put more emphasis on simplicity—lack of complexity—and keeping business costs down. A large percentage of our membership are community-based. They are local businesses living and trading within their community. They probably do not see the bigger issues as dominant—the idea of some sort of cross-border relationship. That is a fair summary.

The Chairman: We will obviously get into some of the more detailed aspects with further questions. Do you recognise the concept of an economic union? We have been talked to about a social and political union. How do you see the overall thrust and definition of an economic union? Do you think that can be crystallised?

Stephen Herring: Yes. For many purposes, the UK is a single marketplace in itself. That is not to say that businesses are not involved in exporting to the European Union and beyond, but most businesses, the bulk of businesses, do not export. There is a small subset, but a lot of businesses provide and sell services and goods across local authority boundaries. This may be a feature of being an island nation—perhaps more so than if you look at the position of Belgium or the Netherlands, where there may be a greater percentage of cross-border business. The UK can be looked at as a single marketplace, and most economic growth and government policies can be focused on optimising outcomes on that basis.

The Chairman: Do you think there is an irreducible minimum of taxation that should be retained at the centre to maintain the integrity of the union?

Stephen Herring: Absolutely. Let me illustrate it by putting two different perspectives. We have the Scottish rate of income tax and the definition of a Scottish taxpayer, in my view, is reasonably well-drafted. There will be a relatively small number of people who cannot determine whether they are a Scottish taxpayer, because it focuses on residence. There are other areas like business rates where we know in what part of the country a commercial property might be; there is no doubt. If you go to the other end of the spectrum, with, say, corporation tax, which is trying to assess a profit and is a mixture of sales revenues and business operating costs, it is much more difficult to determine whether a profit might have arisen in the manufacturing plant in the North-West or in the sales centre in Scotland. When you are looking to devolve some taxes, it is much easier to look at those where there will be certainty and that will not involve a considerable amount of compliance cost. We have 35,000 members; 70% are SMEs and 30% are directors of listed companies. Compliance cost, and whether it will put another burden on business, always comes at the top of their list. Maybe devolution should focus on the simpler and more certain taxes, and avoid the more complex taxes with higher compliance costs.

Martin McTague: There are a lot of parallels with the EU debate on the benefits or otherwise of a single market. Many of our members—about 75%—do not export, so they will probably not appreciate the benefits of a single market. Until they are faced with barriers trading across borders, I do not think those issues will be uppermost in their mind. One example that would come home to small businesses is business rates reform, which is a big issue and is probably affected by devolution. There is some suggestion that rates or reliefs could be fixed locally. You could then end up with something like 300 different relief systems around the country and you could be faced with different rates. That so increases the complexity of the system that people would suddenly value the benefits of a single market where there is almost frictionless trading within the UK.

There is one possible exception. We have a very strong opinion among our Northern Ireland members. They believe in the importance of setting a competitive corporation tax rate because of the land border with the Republic. Broadly, that would be the exception.

Baroness Taylor of Bolton: Are you suggesting that increased divergence is going to undermine the union? In your terms, you see the union as a single market. If we get more divergence between Scotland, Wales and other places, or indeed in the regions, you are suggesting that in a sense it undermines economic cohesion, which would then undermine the concept of the United Kingdom as a union as a whole.

Stephen Herring: I am sorry if it came across that that was what I was suggesting, because it is not. There are some macroeconomic and fiscal policies, such as control of the deficit, which our members always list at the top of their priorities, which need to be looked at on a national basis. Once you drop down to individual fiscal and tax policies, the impact of the compliance cost ought to be high up on the list. It should be a filter that says, “Even though we might wish to do that, if the compliance costs are too high, we should avoid it”. I gave the illustration of corporation tax.

Devolution is not actually that new for some other taxes. In the 1980s we had the launch of the enterprise zones, which gave particular focus, with business rates relief and capital allowances relief, to very small areas. I do not think something like that undermines the Union providing that it does not create a situation where there is automatic conflict between different areas. Broadly speaking, the enterprise zones were successful and they were very tightly focused. On a regional basis, I can understand why a particular region might say, “We need a particular link to a motorway and we would be willing to pay a little bit extra in business rates for that infrastructure spend”. I think up to 2% is allowed. “Even if it does not make the cut nationally, we would be willing to finance that for the benefit of the regional city businesses”.

Baroness Taylor of Bolton: In business planning, do you think that considerations of that kind are increasing at the moment?

Stephen Herring: Yes, I think they are. If you push more decisions about local business down to cities and regions, about 70% of our members—I gave the statistics in the paper—seem to think that they will get better decisions if they are made locally, because local businesses understand the particular priorities, perhaps more than Whitehall does.

Baroness Taylor of Bolton: They think that that is the likely outcome rather than a competing pull from different parts of the UK.

Stephen Herring: Yes. There is obviously a lot of concern that if corporation tax were to be devolved, or any tax, you could get a race to the bottom. We have much less concern about that. Provided there is democratic accountability where someone has to bear the cost or find the revenues somewhere else, or it is put to local electors which services are going to be cut to finance a tax reduction, we think that is a good thing. On the whole, regions are likely to make somewhat better decisions if more powers are devolved. I do not think it is inconsistent to have more devolution in the context of a strong United Kingdom; you do not need to have one or the other.

Q181 Lord Hunt of Wirral: Quite a lot has already been announced about devolution deals and decentralisation of taxes. Could you look at it overall and tell us what you think the effect on business generally will be?

Martin McTague: In terms of the deals?

Lord Hunt of Wirral: All the various things—the Autumn Statement and everything else.

Martin McTague: To answer the more general question, there is a belief in the small business community that devolution is broadly a good thing. Making decisions closer to the people affected is broadly good. In fact, there is even a view now that there is more of a requirement on central government to demonstrate why it should stay at the centre rather than the other way round, because it is not particularly efficient at the moment. When it comes to the deals that are being struck, at the moment the view is that it is almost like a private conversation between local government and central government about divvying up what is currently spent at the centre that could be spent more locally. The really important stage will come when it gets down to the detail and what exactly is going to happen at local level once the big picture is painted in. At the moment, there is very little evidence that local government is effectively engaging with business at local level, but it will have to in order to make a success of that process.

Stephen Herring: It is an interesting question, Lord Hunt. The one missing piece at the moment is this. We have a corporation tax road map already and there is going to be a business tax road map. Maybe some form of devolution road map is needed of the pros,cons, and features of the devolution of tax powers and tax incentives. It is not just about the rates; it is about any variations to the tax reliefs available. We may need something to underpin what is happening, so that you do not have a knee-jerk reaction to an individual power, but it is set against a framework showing the good and bad features of tax devolution. As I said, we would put corporation tax right at the bottom of the list if it concerned how taxes were raised, because so many businesses have different locations within the UK for manufacturing, sales units and distribution centres that it therefore seems to have a lot of the features of one of the worst taxes to devolve.

Q182 Lord Norton of Louth: This is a follow-up question. You have already stressed the value, from your members’ point of view, of decisions being taken more locally. At the moment, that is done on a bespoke basis. We have heard that there are problems with that. To some extent, that follows from what Mr McTague was just saying about the openness and transparency of the process. Do you think there is a case for greater symmetry in the exercise and that there should be more coherence rather than its just being done on a particular basis geared to the needs, or perceived needs, of a particular area?

Martin McTague: Our view is that symmetry is not important. We are quite comfortable with the idea that devolution should go along completely different tracks. It almost seems to be the essential component of devolution that you should be able to tailor the offer more closely to local needs. There are clearly quite big variations in capacity at local level. It is obvious that Manchester is in a completely different position from a lot of rural areas. That still leaves us with a lingering fear about what will happen to the rural areas, because a lot of it is about agglomeration. There are a lot of rural areas that bring very little to that process. Are they going to be left in some sort of vague hinterland of the new megacities? That is making lots of our rural members a bit nervous.

Stephen Herring: The word symmetry is a very good challenge. My vision would be that that some degree of symmetry comes to exist at some point in the future and that each economic area, covering the whole country, whether rural, semi-rural, urban or metropolitan, arrives at the same fiscal destination. We do not have an issue if some get there faster because of their particular situation. I happen to be a Mancunian and I have often thought that maybe the reason why Manchester has arguably made the most progress is that, relatively speaking, the population of Manchester is smaller compared with other boroughs in its metropolitan area than would be the case for Birmingham in the West Midlands or for Leeds in West Yorkshire. There are particular features that might mean that someone is ready to fast-track a solution, but you might still have the vision that everyone is going to get there at some point. I do not think those are in contradiction to one another. I certainly would not like the idea that, because someone was ready to take more power sooner, you had to hold them back until another part of the country had determined whether it is Wessex or Western, or whatever it might be.

Lord Norton of Louth: Given that there is more unity for Manchester and you can move ahead more quickly than in areas where there is a mix between urban and rural, how much do you think your members have been involved in that process?

Martin McTague: Very little is the straightforward answer. It largely seems to be a debate about local government reorganisation, which is going on in parallel with discussions about the economic impact. One great illustration is what is going on in Yorkshire. There seems to be a tussle between various districts in Yorkshire on the fringe—the Leeds city region. That has virtually nothing to do with economics; it has everything to do with local government power, and maybe raw politics.

Stephen Herring: We have a reasonable number of members—I could not give you a statistic—actively engaged with the LEPs. If that becomes the chosen route, maybe there needs to be a little more focus on how LEPs are structured to make sure they remain properly representative of the businesses in the area. They have been the only show in town, so they have had the veto on business rate increases passed to them. That is an area where a bit more thought could be given by government.

Martin McTague: That is a really worrying point for us. In his speech, George Osborne said that the business members of the LEP would make the decision on the 2% precept. In some cases, you are talking about six people. There is very little transparency. There is no register of interests. There is precious little involvement with the small business community. It seems a pretty flaky way of deciding on such a big issue.

Lord Norton of Louth: You would say that at local level, in that context, involvement with the LEPS is top down rather than bottom up.

Martin McTague: The LEP is seen as a sort of scrutiny and oversight body, but for our members it does not perform that function effectively on behalf of the small business community. The nature of it means that it usually ends up with vested interests and large businesses being involved. That does not leave enough influence for small businesses.

Q183 Lord Cullen of Whitekirk: I want to ask about the implications of devolution and decentralisation, either already happening or prospective. I have the impression from what you have said already that it should make for greater accountability. How far is it clear to businesses who is responsible for what?

Stephen Herring: It is a very good question. It is not sufficiently clear. That is the first answer. We are at the very early stages of that happening. I am hopeful that decisions to be made locally, or regional city-based decisions, would focus on a particular infrastructure spend that was necessary for the area, or to support the growth of a new industry to reinforce the success that something has had. As more success is generated and more outcomes become visible, there will be more interest in taking part. We are at the very early stages at the moment. Business tends to look at what is happening today and tomorrow rather than at what is likely to happen in two, three, four or five years’ time. Once there are more examples of a particular infrastructure spend, business will get much more interested in having more involvement with those decisions.

Martin McTague: On the accountability point, business broadly likes the idea of simple lines of accountability. Sampling our membership opinion, it seems that they are broadly supportive of the idea of a mayor and would see that as a positive development. The real question marks remain over how you make scrutiny and accountability work more effectively.

Q184 Lord Lester of Herne Hill: As you know, so far devolution in England has been administrative. Do you think it would help if Parliament became involved and created some kind of devolution-enabling legislation?

Stephen Herring: If we are to get democratic input, it is essential. If devolution becomes so widespread, I do not think it can all be achieved through an administrative route. There will be a need for proper democratic structures that Parliament will need to introduce as the framework for that devolution.

Martin McTague: As I understand it, the process for administrative devolution is the Cities and Local Government Devolution Bill, which will establish the basis for it. Recent amendments that allow recalcitrant districts to be either dragooned in or drummed out of a combined authority raise more questions than they answer. We believe that the real question is probably whether it starts to go towards fiscal devolution. Our membership is more nervous about that process. There are still people of my age with memories of the 1980s, and the largesse of local councils using business resources, so a confidence-building exercise needs to be gone through. If you have administrative devolution and it starts to build up people’s confidence in the structures, accountability and management of that process, fiscal devolution is possible in the future.

Stephen Herring: It is an interesting area. At the moment, would a business in Northern Ireland, for example, say, “We don’t have devolution on the rate of corporation tax because it was actually decided in Westminster”? Would they be bothered about where the decision was made? They would be more bothered that the decision was made. That is probably a bit of a one-off, but as you go more into pushing powers downward, they need more of a framework. I do not think that businesses in Northern Ireland are particularly concerned that the decision to have a lower corporation tax rate was made in Westminster.

Lord Lester of Herne Hill: I want to be a bit clearer, Mr McTague. Are you in agreement with Mr Herring about the desirability of a legislative enabling framework, or not?

Martin McTague: The answer is that I thought we had one. I thought we were developing it as part of the legislative programme that is going through the Commons at the moment. Maybe I am behind the curve on that issue. I understand that is the framework that is being developed—the basis on which we will be able to devolve powers to local government.

Q185 Lord MacGregor of Pulham Market: We have already touched on the subject of tax. I was going to ask you questions about income tax and corporation tax separately, but let us take them together. You have in part already answered this. What impact might the devolution of income tax rates and potential divergences in rates and bands between Scotland, England and Wales have on business? The Economic Affairs Select Committee of this House said about that: “While we agree that income tax is a suitable candidate for devolution, we are concerned that a decision to devolve nearly all revenue, uniquely amongst countries in a similar position to the United Kingdom, has been adopted with undue haste and little assessment of the economic and political consequences”. Do you agree?

Stephen Herring: The Scottish rate of income tax is going to be set in the Scottish budget today. Of course, it is one of the things that is going to put pressure on politicians locally, whichever party or area they might represent. I have read a lot about this. It is right to say that if somebody knew there was just going to be a 1% increase or decrease, it probably would not affect business behaviour. An executive or an entrepreneur looking to set up a business would not be concerned if, instead of the Scottish rate of income tax being 10%, it were to be 9% or 11%. However, the second question is whether it becomes indicative of a direction of travel. That is very important, and you will not be surprised to hear from someone speaking from the Institute of Directors that I hope it has more impact on keeping rates of tax down, rather than increasing rates of tax. It will mean that the focus in each area will be, “Are we concerned that we will become a less attractive location if we have a higher rate than elsewhere, even if we are not totally convinced that we will become a more attractive location if we have a lower rate?” Perhaps it could appear to be counterintuitive to have some proposal that will have a tendency to keep rates lower and reduce taxation.

Lord MacGregor of Pulham Market: Are you particularly talking about corporation tax in that context?

Stephen Herring: Income tax (on business profits) as well.

Martin McTague: The most practical example is the reaction of our Scottish members. They are broadly positive about the process. There was quite a lot of nervousness at the outset about where it was going, but now it is broadly positive. There is a feeling that some of the fears have been calmed. It can sometimes be a bit overstated. For example, there is a bit of tax competition going on in business rates. The Scottish business rates system is slightly below the levels that are set in England, but 99% of businesses are small and there is no evidence of mass migration across the border to take advantage of those rates. Broadly, so far, the impact on business and business opinion is minimal.

Lord MacGregor of Pulham Market: It is obviously very early days. You referred to the control of the deficit in one of your earlier answers. Suppose we see a situation arising in which, for the reasons you have described, income tax rate and corporation tax rate are kept reasonably low but expenditure continues to rise and there is a gap. That is not the theory of the whole proposal—if expenditure gets too high the pressure should be on the rates—but if that situation arose, how would you tackle it?

Stephen Herring: We cannot have devolved authorities overturning the plan to control the UK’s deficit—not only the annual deficit; it would be nice at some point in time to bring the aggregate £1.6 trillion of debt down as well. It must be very clear that if you have a certain level of tax and you spend more in one area, the only way you can meet that is by spending less in another. We cannot allow what has happened in some American cities, which have built up huge deficits that are then unsustainable and the cities go broke. That part of macroeconomic and monetary policy needs to remain firmly with Westminster.

Martin McTague: I share your concerns about the fact that there is a lopsided arrangement where the taxation is there and there is a reluctance to increase rates because of the politically negative impact. Equally, there is a cap on borrowing and something has to give. The Scottish Government are faced with those issues at the moment—how they are going to deal with spending. Having given a lot of broad promises about what they would do on spending, it is now going to be difficult to meet those spending obligations. From a business point of view, it undermines confidence, because you cannot really see a solution to that particular problem.

Lord MacGregor of Pulham Market: If the deficit grows—it may be that rates of tax and expenditure will be kept in line together—does that not put a huge emphasis on the outcome of the fiscal framework, which is still being negotiated?

Stephen Herring: Whatever happens as a backdrop to the economic situation, the deficit cannot be allowed to grow. I do not think it needs to if devolution is properly nuanced and passes down responsibility as well as powers. We cannot have a situation where the huge advantages of eliminating the fiscal deficit and bringing down the amount of government debt are thrown away by decisions made regionally. That cannot be the case. It still leaves a lot of powers regionally. We have talked about business rates a lot. We have made a lot of comments about how business rates are, to use the old expression, unfit for purpose. A lot of the time, a microbusiness expands to become a small business and the rate reliefs are lost very quickly. You can leave considerable powers to tweak individual taxation aspects without threatening the overarching framework to eliminate the public sector deficit.

Martin McTague: The only way out of the conundrum is to borrow more in Scotland. There is obviously a limit on that, because you would be borrowing based on the UK’s fiscal security. At a more local level, there are a lot of assets in English local authorities that are not being used effectively and that could be put to work more effectively. As long as power is devolved to a more sensible local level, some of those decisions can be freed up. A lot more could be done at local level that is currently not happening at UK level because of lack of resource.

Q186 Lord Judge: I am afraid I am getting a bit confused. At one stage early on, Mr McTague, you said that the problem with different rates and different reliefs fixed locally led to uncertainty. On the other hand, you have given a strong indication that local businesses answering to local authority, regional and so on, is hugely advantageous. If I may say so, Mr Herring, I think you take the same view. What I would like to identify is what you consider to be macro in the context of devolution in Scotland, Wales and Northern Ireland. I understand you to say that, yes, at macro level, we have to have a national cross-border. Where does the macro line get drawn?

Stephen Herring: It gets drawn on monetary policy. We only have one pound. It has to be central between the Treasury and the Bank of England, wherever that line might be. The deficit position of the Exchequer and the aggregate level of debt need to be kept centrally under control. I do not think we really differ, but that still leaves tremendous scope for devolving decisions locally on the basis that, because the responsibility is delivered, you can have A, B and C but you cannot have D, or you can have A, B and D. There are different baskets of reliefs that might be appropriate for each area and they might, quite validly, make different choices of those reliefs, but it has to be against the fixed allocation of central Exchequer funds. If you spend more in one area you either have to spend less in another or have to raise the level of tax to finance it. Local authorities cannot be given carte blanche to do what they want and then say, “Sorry, we have fallen short of tax revenues”. The responsibility has to be devolved to meet those targets. There is a lot of opportunity to do that. I have worked in London and in different regions such as the East of England and the North-West. You do not need to go to many business gatherings to hear people say, “Well, I wish they had built that bypass rather than made the decision to do that”. There are significant opportunities for devolving power and choice to the regions without putting the country’s broader macroeconomic and monetary policies at risk.

Lord Judge: Are you inviting us to draw a distinction, in the last few sentences of your answer, between devolution in relation to Scotland, Wales and Northern Ireland and devolution within England?

Stephen Herring: Not at all, no. There are some powerful regional areas that could equally well have powers devolved to them, as has happened with Scotland, Wales and Northern Ireland, as long as democratic accountability can be put in place and the right and acceptable choices for that are made.

Martin McTague: I go back to the original point. We are broadly supportive of the devolution process. The complexity I was adding, which may be causing confusion, is that for some businesses it adds a layer of complexity to their business trading and it will inevitably add cost, but the broad picture is positive. To use that ugly European word, subsidiarity is what you are trying to achieve. You are trying to get decision-making to the lowest reasonable level, where businesses can understand who is making the decision and they feel that they are in tune with conditions in their local market and local community, but for things such as the national debt, there is clearly an imperative that the decision is taken at UK level.

Q187 Lord Maclennan of Rogart: How do you retain the balance between national debt and freedom to raise or lower taxes at the local level, the devolved level and the national level? Should you have guidelines? Do you have some proposals to control the central funding that is going to local regions?

Stephen Herring: You need some very severe controls to make sure that tax collections and tax policies do not get out of kilter with spending. I would not like to think there was a scintilla of doubt that, if you wished to cut one tax, you would need to raise another or spend less to finance it. We cannot have all the decisions made by a number of different devolved nations and regions superseding the requirements for the UK economy as a whole, particularly as it will also be to the disadvantage of those nations and regions. The accountability and controls must be in place, but that should not be read as saying that there is not a lot that you can devolve. There are still a lot of choices that the nations and regions will be able to make. We see that in Scotland at the moment, with the pressures on whether the Scottish rate of income tax is to be altered.

Lord Maclennan of Rogart: Is it something that would be included in the legislation, or would it be debated between the Bank of England and local government? How do you enforce the balance that you are describing?

Stephen Herring: I would have to leave it to your good selves as to what the right parliamentary approach would be—whether control is exercised through Treasury allocation of funds or there is a framework of overarching legislation. From a business perspective, I am a bit more interested in the outcomes than the primary legislation they track back to, but must it be there? Yes, it must.

Baroness Taylor of Bolton: I want to pick up a point that Mr McTague mentioned earlier. A moment ago you were talking about subsidiarity, yet a few questions ago you were talking about LEPs and the difficulty of accountability from the small business point of view. I wonder what your answer is as to how you square that circle, given the difficulty that you outlined.

Martin McTague: It is interesting, because there is a real parallel with the debate about mayors. We do not think there is an obvious person in the LEP who is accountable to the small business community. That is a relatively easy thing for a LEP to resolve. All the chairman of the LEP has to do is to nominate one person who is completely accountable for the relationship with the small business community in their area. At the moment there is a pass-the-buck approach. There may be a guy who ran a chip shop 20 years ago who apparently has small business experience and who is notionally the small business representative but has no real responsibility to carry out that function. It needs to be much clearer, and it can be made a lot clearer by the LEP boards.

Baroness Taylor of Bolton: You would accept just one nomination.

Martin McTague: It is not an ideal solution but it is certainly a step forward from what we have at the moment, which is no obvious link to the small business community.

Lord Lester of Herne Hill: Mr Herring, Lord Judge was asking you whether Northern Ireland should be treated as special and different or not; and I think you said, not.

Stephen Herring: The question was about Northern Ireland, Scotland and Wales. I agree; I said not. The one exception that trumps that is the fact that Northern Ireland has a land border with the Republic, so I can see that there is a special requirement for a competitive rate of corporation tax for Northern Ireland. Whether that is something set by the Treasury, after consultation and, no doubt, lobbying from business in Northern Ireland, or set in Northern Ireland, I am less concerned about than the outcome, which is that, in a place where there is a land border, that part of the UK should have a rate that is competitive with the country on the other side of that border.

Q188 Lord Lester of Herne Hill: I have not actually asked my question yet. Are the issues of accountability and control—two of the words that have been used—to be viewed in the same way in Northern Ireland as in the rest of the United Kingdom, given that the polarisation of the political system in Northern Ireland is leaving the DUP and Sinn Fein to try to form a Government? Are you saying that is to be ignored in the way that we look at the framework?

Stephen Herring: You might be taking me into all sorts of constitutional and democratic issues beyond business.

Lord Lester of Herne Hill: We are a constitution committee.

Stephen Herring: Yes, but I am a mere spokesperson for business so maybe those issues do not always overlap or meet. For most of the time, the DUP and Sinn Fein seem to have worked pretty well together in Northern Ireland; in recent months, there have been more difficulties. The position is probably more unusual there, and might need more intervention by an “umpire” than perhaps in other parts of the United Kingdom.

Martin McTague: Maybe I can add something to that. Listening to some of our members in Northern Ireland, they say the devolution deal is more like a peace treaty than a proper devolution deal. The process is more about keeping warring factions at arm’s length than proper devolution. There may be a way to go before that process is more established, in the way we would understand it in the rest of the United Kingdom

Lord MacGregor of Pulham Market: I want to come back to the answer you gave Lord Maclennan on the balance between fiscal raising and expenditure. You are making your position quite clear. You felt that you were in favour of devolution but you assumed that devolution would pass that responsibility down to the devolved Governments or authorities. What if, in fact, that did not happen and in the early stages taxes were lowered but expenditure was raised—for example, in Scotland—and you felt that that had some threat towards the fiscal deficit and the overall macroeconomic control of the Bank of England, as you described? Do you think that the mechanism is in place at the moment to prevent it happening?

Stephen Herring: The practical mechanism is that the devolved authorities will remain very dependent upon funds from the Exchequer to meet their spending through whatever formulas are in place at the time. It needs to be shown in practice with the approach adopted that there can be no prospect whatsoever of that occurring, because at the end of the day that will put interest rates up. It will have an impact on the value of the currency to the disadvantage not only of businesses in England, Wales and Northern Ireland but, using Scotland as an example, to businesses in Scotland. There is no room to allow some sort of unfinanced or unsustainable deficit to arise. The Treasury and the Ministers concerned cannot allow any risk of that happening, because it would be so detrimental to the UK, including the particular area that went down that route.

Lord MacGregor of Pulham Market: For businesses and your members, the outcome of the current discussion on the fiscal framework in Scotland will be rather crucial.

Stephen Herring: It will. Strangely enough, our members occasionally surprise me. We had a survey over a year ago to rank things in order of importance for a forthcoming Budget. Our membership have quite a liking for tax cuts, particularly of business taxes, but well above their preference for that has been and continues to be their highlighting of the need to bring down the deficit, even above tax cuts that might directly advantage their particular businesses. Business can see that it really is critically important to the long-term success of the UK economy.

Q189 The Chairman: We have time for one more question, so I shall exercise the Chairman’s prerogative and ask it. At the heart of every parliamentary democracy is a whipping boy and it is almost invariably the Treasury or the finance department. Rightly and properly, they keep a very tight discipline on money expended in the public interest and they expect value for money. Do you think there is a problem? Is it developing well in this new decentralisation/governmental policy which has widespread all-party support, both nationally and locally, or do you think the Treasury has to have a rethink about how it goes about its business?

Stephen Herring: We have touched upon some areas where, maybe, a rethink is required. We have talked about the role of the LEPs, which may be the only choice available on business rates. There may be some need to think more about how business is represented regionally and in the cities where there are devolved powers. There are some lines in the sand about financing spending that needs to be done. I would like much firmer rules that a devolved authority needs properly to take account of the compliance burdens placed on businesses—on individuals as well, but principally on businesses—because we really do not want a dozen devolved authorities all calculating profits in a different manner. If you were trading in all of them, you would have 12 business tax and corporation tax computations to do under different sets of rules. That would be an absolute nightmare and very detrimental to the UK economy. We are in early days, but there are areas where some more thought needs to go into putting these down as the framework for future devolution.

Martin McTague: We are in a completely new world now. There is a massive change in thinking in the Treasury. I accept that it is the usual whipping boy for these decisions, but there is a really refreshing change in thinking. Previously it has been much too London-centric and it has allowed the north of England especially to fester as part of that process. There is a real change in that mood and we welcome it.

The Chairman: I ought to know but I do not. Does it have a presence on the ground in the northern parts of the country? If not, should it?

Martin McTague: Probably, yes. The one who springs to mind is James Wharton. He is the roving Northern Powerhouse Minister.

The Chairman: Yes; he is a Minister but he is not a civil servant. There has to be a Civil Service input.

Martin McTague: The Civil Service is still very much London-centric, but the guy behind me made sure that that did not prove an obstacle when it came to winning deals for Manchester.

The Chairman: We may be able to pursue that in the next session. If my colleagues have no further questions it remains only for me to thank both of you very much indeed. It has been extremely productive and very interesting. Thank you, Mr Herring, for your written submission, which was very useful. We are most grateful.

Examination of Witnesses

Sir Richard Leese, Core Cities, and Lord Porter of Spalding, Chairman, Local Government Association

Q190 The Chairman: I welcome both our guests to this session. Both are distinguished in different areas of expertise. Sir Richard is heavily involved with Core Cities and Lord Porter is the LGA chairman, elected at the general assembly this year, and a newly appointed Conservative Peer. We are very grateful to you for coming to us, because we are pursuing, under the heading, “The Union and Devolution”, a wide range of disciplines and areas of interest. What we have to ask you and what you have to say to us will be very interesting. I will start with the first, rather general, question. It is of particular interest in your case, Sir Richard, because of your Core Cities involvement with Glasgow and Cardiff. What impact has devolution in Scotland, Wales and Northern Ireland had on local government?

Sir Richard Leese: The answer, from my point of view, is that it has had no direct impact whatever on local government in England, other than driving the case for devolution within England. As regards Scotland and Wales, one of the reasons why Glasgow and Cardiff applied to join Core Cities was that the Core Cities arguments about devolution were just as pertinent to Scotland and Wales—Glasgow in particular made that case. Indeed, as a result of devolution, Scotland and Wales have become even more centralised than England. If anything, the devolution case was even more pertinent to Scottish and Welsh cities. What is interesting in that context is that Glasgow was the first city to do a city deal in any of the devolved Administrations. That city deal was initially done with the Westminster Government, with the Scottish Government only rowing in behind. They were almost shamed into having to do something on the back of the deal done with Westminster.

The Chairman: You have hit on a very interesting point and one with a certain sensitivity in Scotland.

Lord Porter of Spalding: I am of the same view as Richard. My predecessor, David Sparks, was quite heavily involved, and had close working relationships with our counterparts in Scotland, Wales and Northern Ireland. I am coming to that party slightly late, but the kind of thing I inherited was that, if English devolution looks anything like Scottish devolution, it is probably no good for localism. COSLA, our equivalent in Scotland, always bemoans the level of extra centralisation that devolution to Scotland has created.

Q191 Baroness Taylor of Bolton: We have always been aware that local authorities co-operated and worked together at the LGA and, as you have just mentioned, COSLA. Sir Richard has just mentioned the Core Cities groups and that recent development. With the push on devolution, and now the new legislation, how are local authorities working together now? Has it impacted on their level of co-operation or has it increased the rivalry? There is always the feeling that there can be leapfrogging: “They have these powers and we want a bit more, and we are going to be competitive rather than working on a co-operative basis”.

Lord Porter of Spalding: One of the things we hoped was that people would leapfrog beyond each deal that was done. Unfortunately that is probably not the case. It is something the LGA will have to work harder at doing. The LGA took a very brave decision a couple of years ago when Richard’s group of people wanted to go off and do a deal. The LGA’s normal position is, “You cannot go and we cannot support you until everybody is capable of doing it”. That was the first time I can remember when we said, “No, the fastest can run as fast as they can and it is for everybody else to catch up”. The fastest have run really fast and those who are catching up have still got nowhere near catching up. We hoped that each successive deal would be an improvement on the previous one. It has not been like that. Richard’s deal is still the flagship deal. Doing it in the way we did has not hindered our working closer together, but more of my colleagues need to get a bit more ambition built into their bids.

Sir Richard Leese: It is frightening that we will probably agree with each other all the way through. I am in favour of leapfrogging, but it is not happening. The local government family took a bold decision a couple of years ago, first, to reject one size fits all, and then to reject one speed, on the basis that one size fits all is always the lowest common denominator and one speed is the speed of the slowest. Local government has taken the view that we need to be at the speed of the fastest, dragging other people along. If we believe in localism, different places have different needs and that implies that you do different things in those places. One size fits all does not relate to those different needs.

On cross-border work, I cite an example of significant devolution that tends to get missed. Two new northern rail franchises were announced last week. Those franchises were previously managed by the Department for Transport from London. The new franchises will be jointly managed by Rail North—northern transport authorities with DfT—from an office in Leeds, with a presumption that by 2019-20 they will be wholly managed by northern local authorities. That is a very significant piece of devolution. To do it required every local authority in the north of England to work together. I think that is unprecedented, but they are doing it. Coupled with the work that Transport for the North is doing, it caused the North Wales Economic Ambition Board to approach Transport for the North through me, with the support of the Finance Minister in the Welsh Assembly, to discuss how they can contribute to, and benefit from, what is happening with Transport for the North and the northern powerhouse. We are beginning to see, arising from devolution, new and collaborative arrangements between local authorities at different spatial levels.

Baroness Taylor of Bolton: As someone who has an interest in both Lancashire and Yorkshire, I think that is really good news. I want to go back to the speed issue—the fastest. By definition, if some areas are moving more quickly than others, some significant areas will be left behind. Given that participation rates in local government elections are very low, there is not necessarily pressure building up to make local authorities move faster. It could mean that some areas are going to be seriously disadvantaged, both in economic terms and in terms of the services that can be provided.

Lord Porter of Spalding: They will be disadvantaged only if their politicians do not take advantage of the opportunities that are in front of them. This should increase local participation in a positive way. If you have people playing nicely and the combined authority achieving more devolved powers, there will be more at stake for local people in making sure that the politicians who go to that combined authority are the right people. In areas where they are not in a combined authority, we would expect the electorate, who can see other people getting the benefits from a combined authority, starting to question their politicians: “Why am I voting for you, if you are not prepared to take full advantage of what is on offer for us as a community?”. The fact that people are going at several different speeds will be the thing that generates interest among the electorate. People will start to realise there is a point in voting or not voting at local level because more powers and freedoms are available. They will say, “Either my people can do it and take advantage of it, so I will vote for them to keep them in; or my people are not doing it, so perhaps I will change them for some that might”.

Baroness Taylor of Bolton: You think there might be increased participation.

Lord Porter of Spalding: Definitely.

Sir Richard Leese: It is also what is happening in practice. Greater Manchester created the first combined authority in 2011 and that was very much bottom up. Greater Manchester approached the Government in 2006 with a request for a new statutory body. When that combined authority was created, four more came into being three years after, and we now have a flood of proposals for combined authorities. It has demonstrated that local authorities coming together with shared objectives allows them to do things that they could not do apart. Once that has been demonstrated, local authorities up and down the country, and not just in metropolitan areas, are seeking to replicate it to suit their own circumstances.

Q192 Lord Maclennan of Rogart: Can you say whether you would support a principle of fiscal responsibility, with local authorities responsible for raising much of the funds which they spend? If so, how would fiscal redistribution within the United Kingdom take place?

Lord Porter of Spalding: Fiscal devolution is the utopian aim. When we get that, devolution will be truly bedded in. There are steps being taken. We have seen the retention of business rates. By the end of this Parliament, councils across the country will be able to retain all their business rates. That is going to require councils to have a solution put on them from government, so that some of the people who cannot necessarily generate enough to look after their communities will get some out of the pot; or hopefully it will be for the sector to work through that distribution conversation. We are doing it at the moment with DCLG on the better care fund and the 2% uplift in domestic rate for better care services. At the moment the four group leaders at the LGA are working through what might be a proposal. They are speaking to Richard today to make sure it works from a met angle. They will be speaking to Paul Carter who leads for the counties to make sure it works from a county angle. If that is possible, the LGA will be able to put something into the redistribution conversation for the first time. This afternoon, I hope we will be able to put forward a proposition to DCLG: “This is how the sector would support this pot being redistributed around the country”. If that happens today or tomorrow morning, hopefully, it should give everybody confidence that it is possible to do it at a much greater level. There has to be fiscal devolution; you cannot really have freedom without control of the purse strings as well.

Sir Richard Leese: Could I refer back to Baroness Taylor’s question and the issue of accountability? I do not think we have proper accountability, and certainly not proper democratic accountability, if the raising and spending of money are not put together. There is a very strong political argument why fiscal devolution has to go alongside the devolution of spending powers. It was addressed by your colleagues at the other end of the corridor last year in a report on fiscal devolution from the CLG Select Committee. I do not want to misquote, but it said that the economy of London is greater than the economies of Scotland, Wales and Northern Ireland put together, and the economy of Greater Manchester is greater than that of Wales. That we should have any less control over our own destiny than Scotland, Wales and Northern Ireland becomes completely unacceptable when you put it in those terms. It also said, by the way, that although fiscal devolution is right it is also very difficult. It is difficult, but the fact that it is difficult does not mean that we should not do it. It means that over time we have to redesign large parts of the UK’s tax system.

Q193 Lord Norton of Louth: I want to go back to the point about the asymmetry that there is at the moment, with pushing power down. It differs at the moment, with some going very quickly while others are not. We have heard evidence to the effect that this is of value, but we have also heard counterevidence. In Robert Hazell’s evidence to us, for example, he argued that we would end up with a rather fragmented, patchwork system of devolution. He argued that in the long term it was not sustainable. I take it from what you were saying that you would regard it as sustainable and that the asymmetry will become less as more and more combined authorities are created; therefore, it will reach a natural level rather than requiring government involvement to create symmetry.

Sir Richard Leese: If we take the arguments about fiscal devolution to the next stage, and local areas are responsible for raising more of the money and spending more of the money, that there are differences between areas becomes less important. There will always be an issue for central government, particularly elected on manifestos, about how its deliver its manifesto commitments. To impose outcomes on local areas is entirely reasonable around those manifestos. What is not reasonable is to impose the mechanism by which those outcomes will be delivered, when local places are far better suited to determine those methodologies.

Ultimately, we will reach a point in some current aspects of central government delivery where so much is devolved that it no longer becomes possible to maintain any central function. I think that is easily managed. Where there is not the capacity or capability locally to deliver programmes, or whatever they are, another local authority area can deliver them on their behalf. That already happens now. In the north-west, the Manchester Growth Company delivers business finance services across the whole of north-west England, and increasingly in other parts of England as well. There are ways of managing what happens as the centre declines to make sure that you do not have gaps left anywhere in the country.

Lord Porter of Spalding: If the argument is that because a big chunk has been devolved it makes a central government department smaller and probably less viable, perhaps that is not a bad thing either. Central government departments can merge, share services and do all the wonderful things that local government has been doing for the last few years. It should not be seen as a threat to anybody other than some career civil servants. It will be unfortunate for a few people, but I am sure that if we are reducing employment in some areas that is one area where most people in the outside world would not think it was a bad thing.

Lord Norton of Louth: You see it as good that power is devolved, but you are still going to get some degree of asymmetry.

Sir Richard Leese: You are, but this is edging towards the question often asked about the postcode lottery. Part of the response is that if we accept that different places are different and if you do the same thing everywhere, as national programmes tend to do, you end up with different outcomes. If you want universality in outcomes, you have to do different things in different places to achieve it. Devolution and decentralisation are a route to do that.

Lord Norton of Louth: The real problem at the moment is just getting from here to there. Some are moving fairly quickly but others have problems. We heard earlier that, where there is a mix of urban and rural, there is more of a problem reaching solutions, but your point is that we will get there.

Sir Richard Leese: I think we will get there. There was a recommendation in Michael Heseltine’s No Stone Unturned report, which if implemented would have made life a lot easier. It was that local enterprise partnership geographies ought to be reviewed so that they properly reflected economies on the ground. If that had been done, it would have given a very clear spatial framework for future devolution and would have avoided some of the local tensions that we currently have.

Q194 Lord Lester of Herne Hill: What happens if something goes wrong? Who is to decide? Is it civil servants in Whitehall, elected politicians in Parliament, judges or none of those?

Lord Porter of Spalding: Surely it should be the people who are responsible at the appropriate level for the thing that has gone wrong. If it is in a truly devolved service that Richard is delivering in Manchester, and Richard gets it wrong, that is where the blame should lie. It is one of the things we are going to have to change as a country. We cannot expect government Ministers to be responsible for everything they have devolved—if services are truly devolved. I also lead South Holland District Council. If I was to be responsible for doing more, I would be responsible for doing more and if something went wrong in my patch I would be the one that people called for to be dragged through the streets and castigated for whatever had gone wrong. That is how it should be. We, as local politicians, should not try to hide behind national government of whatever colour it happens to be. It goes with the turf. If we have the freedom and the power to do the right things and we end up doing the wrong things, we should take the blame.

Lord Lester of Herne Hill: What I really had in mind was the problem with the elective dictatorship. With full devolution you may have a local elected body which misuses its powers—for example, by discriminating in an unfair way. Who is to call it to account?

Sir Richard Leese: I have precisely the same problem with the Houses of Parliament. Ultimately, who calls them to account? The electorate and the courts tend to be the two tests. In a devolved and decentralised system it would depend on precisely what it is. There will be some mixed accountabilities. For example, in the devolution of health in the Greater Manchester area, the Secretary of State for Health will still retain ultimate responsibility for the NHS as it operates in Greater Manchester. You are going to get some mixed accountabilities, but all of us in local government are looking forward to the day when a Minister in Parliament is asked a question and the answer is, “You will have to go and speak to the Mayor of Greater Manchester or the leader of Manchester City Council about that; it is not within my remit”.

The Chairman: I do not think that would get him off the hook somehow.

Baroness Taylor of Bolton: I want to follow up on what was just said, particularly by Lord Porter. Is it your dream that Governments set outcomes or minimums and those are all delegated and devolved to local level? If that is your perception of the future, what is the role of central inspection of the level of services in any particular region?

Lord Porter of Spalding: Yes, it is to a certain extent. I am not sure that local government is best placed to be trusted on determining whether it is time to go to war or not, but on the things that should naturally come down to the lowest common denominator, in an ideal world we will have complete freedom. If government is still setting the minimum outcomes that are necessary to be achieved in any particular service area, there will still be some central regulation. We have seen over the last five years that there has been consistently less central interference, as regards inspections afterwards, in what we are doing locally. We called for the abolition of the Audit Commission and the last Government got rid of the Audit Commission. The sector now largely regulates most of its services, with the exception of the things that have been pulled away from us. There should be some central inspection to make sure that we deliver the broad outcomes.

Baroness Taylor of Bolton: You just used the word “interference”. Do you see inspection or regulation as interference or as protecting the overall quality of service nationally?

Lord Porter of Spalding: Some is good, useful and reasonable, and some is completely pointless and costs the taxpayer money for no apparent benefit. We saw that under the previous inspection regime. We were expected to account for all sorts of bizarre figures that we used to pay somebody to collect. Then we would send them off to Whitehall and somebody would be paid to analyse them. Then they would sit in a file and gather dust. They never had any impact on anybody’s life beyond that, other than keeping a few people employed doing pretty useless jobs.

Sir Richard Leese: We have started using devolution as a catch-all phrase for a number of things. It now covers devolution, decentralisation and delegation. That is reflected in what is in devolution deals. To distinguish two of the ambitions of Greater Manchester, on skills, our view would be that the skills offer in Greater Manchester should be totally determined locally; on employment programmes, currently the Work Programme, our view is that they should be jointly commissioned with central government. It is not complete autonomy at local level and there will be different solutions and a different relationship between local and national, depending on what we wish to do.

Baroness Taylor of Bolton: There is a slight difference of emphasis between the two of you.

Sir Richard Leese: Yes.

Lord Lester of Herne Hill: Following Baroness Taylor’s question, what I am really getting at in my question is whether there needs to be some kind of binding code of minimum standards that can deal with abuses of power at local level.

Sir Richard Leese: I would say yes. One of the things that was done in the last Government was a weakening of the ability of local authorities to impose standards on their members. We used to have sanctions against members who misbehaved. We have no sanctions any more and I would rather be back in a position where we had some sanctions. There has to be a very clear code and it needs to be enforceable.

Lord Porter of Spalding: I take the counter position. The code we have is sufficient to deal with people who are likely to be doing things wrong in the first place. There has been less infringement of the rules. There are fewer bullying allegation-type complaints, which is what the code used to deal with; there were overly strong leaders compared with some of their staff. We have seen fewer criminal prosecutions against politicians locally than in previous years. Most importantly, the public’s respect for local politicians has gone up consistently over the last five years. Moving away from the old standards regime to the new one was certainly the right move, and anything going backwards would probably be a retrograde step.

Q195 Lord Hunt of Wirral: If we agree with the Local Government Association that now is the time for bold solutions, am I right to be a little disappointed that all we have is the current model of bespoke deals? Would it not be better to have a clear route to a defined final model of devolution?

Lord Porter of Spalding: No. Centralised localism flies in the face of what we are trying to achieve. As Richard has already said, different parts of the country have different problems, and even if they have the same problems, we will have a different route to tackle them. If we had a centrally prescribed set of services that could be devolved and delivered in a particular way, you would not devolve anything; you would just create little subsets of a central system. It has to be the way it is. My frustration is that there are not enough non-metropolitan areas taking advantage of it. That is something the LGA needs to work on, to make sure that we help and assist wherever we can in getting every part of the country to take advantage of the offer. Just saying, “Here is a blanket model and you have all got to sign up to it by next Friday” would be a disaster. The relationship is not mature enough to be able to take on those services just yet. In places where you have a mature relationship, you would probably hamper it by giving access only to a few things. The problem is a variable problem, so the solution needs to be a variable solution.

Lord Hunt of Wirral: Sir Richard, my problem is that in all my ministerial life I could never find local authorities agreeing with each other. They tended to disagree. Just to give one small example, everyone agreed in Wales, when I was responsible, that we should have unitary local government. But every one of the local authorities I saw had a different view of the size, shape and number. In the end we had an imposed system, whereas in England, whether or not there was insufficient courage, there was no clear outcome on unitary government. It tends to be disparate. Therefore, Sir Richard, although I am a great admirer of your civic leadership, the trouble with bespoke deals is that you tend to rely on really good local leadership that can take things forward, and you will not find that in every part of the country. As you look elsewhere in England, would it not be better just to give people a more defined target as to where they should be moving to take advantage of devolution? I am sorry about that; I had to get it off my chest.

Sir Richard Leese: You can have a defined offer if you like, but if you do not have the quality of leadership you still will not deliver it. Local authorities have increasingly shown quite a large capacity both to agree with each other and to look for innovative solutions to structural problems. In my own area, Greater Manchester, where the combined authority changes have been driven consistently on a three-party basis—it is not just geography but across parties—although we have constitutional arrangements for the combined authority that protect minorities, both political and geographical, they are a bit irrelevant because we have not had a vote since 2011. Rather more creative is what the Sheffield city region is seeking to do: as well as bringing together four unitary local authorities, it is looking to bring together a number of shire district authorities from Nottinghamshire and Derbyshire, obviously with their consent, in a new arrangement. The important thing about that is that it comes from the bottom up to meet local needs. To go back to the Greater Manchester devolution deal, with one exception—the proposal about Sunday trading—every single element came from an ask from Greater Manchester based on evidence collection, business planning and financial modelling that was done in Greater Manchester.

The Chairman: Lord Hunt, do you want to ask your question on London as well?

Q196 Lord Hunt of Wirral: Yes, I was just thinking—as a Liverpudlian—but do not let us go there. Do you think the London model of an elected assembly holding a city or regional mayor to account is something that could or should be emulated elsewhere?

Sir Richard Leese: No.

Lord Hunt of Wirral: I thought you might say that.

Sir Richard Leese: There are two things. You could go to another part of the country and ask people, “Would you like 25 full-time politicians who have no power?”, which is what you have with the Greater London Assembly, in effect, because it is a scrutiny body and cannot make the mayor do anything at all; in fact, I do not think they can even make the mayor turn up for their meetings. I do not think there is any mileage in that.

There is a more significant problem with London. Although lots of areas have sought to emulate the combined authority model, nowhere has sought to emulate the London model. It is a two-tier model, where the mayor has a fairly limited range of functions, largely around economic development and transport. Everything else is with the boroughs. It means that the innovative work in a lot of places on how we deliver public services differently—public service reform—is very difficult to do in London. The fundamental difference is that the Greater Manchester combined authority model is a one-tier model, whereas London is a two-tier model. I would argue very strongly as we go forward for one-tier models rather than two-tier models.

Q197 Lord Morgan: Core Cities commissioned a report that called for devolving primary legislative powers in England on the same basis as devolution in Wales. Is that the established view of your members or of both of you? If so, at what level would it operate? Regional assemblies in England do not appear to have found great favour. The idea of an English Parliament is very controversial. How should it be expressed?

Sir Richard Leese: You are right that the idea of an English Parliament is controversial and, from a local perspective, it would not resolve the issue of what is perceived as a very distant and out-of-touch Westminster. For England, because of the scale of England, an English Parliament would still largely be perceived as remote and out of touch.

In some of the points I made earlier there is a balance to be struck between things that are national, where a national Government can rightly make demands because they have been elected on a manifesto and so on, and things that are local. In relation to the basic building blocks for devolution, the core cities have been arguing for devolution based on functional economic areas from the late 1990s. That is effectively a subregional model rather than a regional model and it is the model evolving at the moment. As regards the balance between national and local, that is work in progress. It is not quite experimentation, but as different places do different things we find out what works, what does not work, what is right to be at that level and what is not right to be at that level. You cannot do it in any other way than doing it and finding out what works. It is a new approach to how we, including Governments, do things: the ability to try out new things, innovate and see what works.

Lord Morgan: You talked about functional economic areas. That is a very variable concept. It can vary a good deal even within one particular locality depending on the nature of the function you are looking at.

Sir Richard Leese: That is absolutely true. Indeed the research paper that Core Cities commissioned back in 1999 looked in particular at the functional economic areas for Liverpool, Sheffield, Manchester and Leeds. Functional economic areas have fuzzy boundaries; they are not well defined and they overlap. All of those functional economic areas overlap. For administrative purposes there always has to be an element of arbitrariness around boundaries, and you want to try to minimise that. The current Greater Manchester boundary does not exactly replicate the functional economic area; it is a close enough approximation to make it work.

Lord Porter of Spalding: The porous part of the boundary argument is the one that sits right through whatever line you draw on a map; it is going to be the wrong line for some reason, which is why it is really important to get the people part right. Richard has clearly shown in Manchester that it does not matter what political party you are from; you can work together for a common aim. That becomes important when combined authority areas are working with each other on some of those porous boundary issues. There is a stronger argument for realigning the LEP boundaries more closely with combined authorities. Once the country has more combined authorities, the emphasis on realigning LEP boundaries will become irresistible at some point. How adjacent combined authorities operate with each other is going to be as important as the relationships inside the combined authority areas.

Q198 Lord Lester of Herne Hill: I was asking questions earlier about protecting individual minorities against the misuse of power by devolved institutions. What about protecting the devolved institutions against the misuse of power by Parliament? In a federal system it is elementary that you protect the states or provinces and central government from each other. You lay down certain principles and you have a court that polices them. We do not have any of that. Do you think that you need some kind of protection against Westminster encroaching on you through parliamentary sovereignty?

Sir Richard Leese: I do. Most of the devolution that has happened over the past five or six years—which is very welcome; in my view we have taken enormous steps in the right direction—has effectively been at the discretion of Ministers. Even the current legislation coming to the end of its run through Parliament is enabling legislation, so it gives Ministers powers to devolve; it gives no guarantee of devolution. Of course, what Ministers can give, they can at the same time take away. That is not a basis for long-term devolution. Ultimately, we need a new constitutional settlement for English local government to mirror the devolution settlements for Scotland, Wales and Northern Ireland. Clearly, ultimately, a national Government, through Parliament, could choose to withdraw delegations, but it needs to be a lot more difficult for a national parliament to do that than is currently the case. At the very least, it ought to require primary legislation to withdraw a delegation, and the requirements of that primary legislation ought to be onerous rather than simple.

Lord Porter of Spalding: From an LGA perspective, Richard’s position is our position. It is all well and good while we have a current Government who are prepared to push powers downwards, but there is nothing to say that a future Secretary of State might think that was a bad idea and start sucking them back upwards again. That would be relatively easy to do. It needs to be as difficult as possible. It should not be impossible, but it should be as difficult as possible for central government to take things back once they have been devolved. There should be some catastrophic failure on our part that warrants it. Going forward, there should be an onus on somebody to make the case why any new legislation should not be a devolved piece of work as opposed to a centralised piece of work.

Q199 Lord Hunt of Wirral: Is it not easier to justify protecting in that way when you have had legislative devolution rather than just administrative devolution? Sir Richard, you have been on Manchester council for almost as long as I can remember. Was it 1984? You have seen political swings one way and another. Indeed, 10 years earlier there was a massive shake-up of local government. Would it not be easier to protect any devolution settlement within England if there was proper legislative devolution? Is that not the history we learn from the other main, motor regions of Europe, expressed through the regional structure of administration across the rest of Europe? How could we protect administrative devolution if it does not have legislative devolution as well?

Sir Richard Leese: That is the point I was trying to make. Ultimately there needs to be a constitutional settlement backed by legislation that, effectively, underpins devolution as of right. As Gary said, the presumption should be that powers are devolved unless there is a very good reason why not. At the moment, we are working in the opposite direction; we always have to demonstrate why devolving is better. We need to turn that equation around, and that will require a legislative settlement, which is not what we have at the moment.

Q200 Lord Judge: If the general public shared your, if I may say so, obvious enthusiasm for decentralisation, why is there such a low turnout at election time?

Lord Porter of Spalding: Purely because there are so few things we can do that are locally determined. Lots of people say, “Well, it doesn’t matter because whoever we vote for, we will only end up getting the agents of central government”. The more power you devolve downwards, the more you encourage people to come out and exercise their power as the electorate.

Lord Judge: As your powers have increased, has the turnout at elections gone up?

Lord Porter of Spalding: Our powers have not increased. Some of our powers are starting to increase.

Sir Richard Leese: We will find out in 2017 when we have our mayoral election in Greater Manchester what the impact is on the electorate. There are other things in play. Turnout generally has gone down for national elections over a long period. In my view, that is because, as a country, we have moved to a rather consumer-oriented view of public services rather than a citizen-oriented view of public services. You will increasingly find that local authorities are at the forefront of trying to turn that process around. We will increasingly be talking about citizen responsibilities as well as citizens’ rights, the need for active communities and all the things that will over time, I hope, recreate an active citizenry who are more interested in who they are voting for and more interested in voting.

Lord Porter of Spalding: When you ask people important questions, they take part. We saw that in Scotland. The turnout in the Scottish referendum was huge, because it was a subject where everybody thought they had an opinion one way or another. People came out and exercised their vote.

Q201 Lord Judge: Independence for Scotland is rather different from independence for Manchester. Nobody is suggesting independence for Manchester. Are you?

Sir Richard Leese: I took part in a conference in Scotland a couple of years ago. A member of the House of Lords speaking there—a Glasgow businessman—said that he thought Manchester had declared UDI a long time ago but just had not told anybody. We are not after independence, no. It is a different issue, but Gary is right that people will vote when they think that voting is important to them. In national elections, turnout is higher where seats are fiercely contested. Certainly in the City of Manchester there can be a factor of 20% difference in turnout, simply because there is a strongly contested seat rather than a non-contested seat.

Lord Judge: In that case I must ask you if you would deal with the information we have been given. It is directed to Manchester, but whether it is Manchester or universal in this question we do not know. I quote: “What has happened in the case of Manchester is exactly the opposite of what should happen from a point of view of getting people along and participating … If you want to do anything, or want people to come on board and develop lasting support, people need to engage in the process”. I understand the answer: “Well, there is not enough power and therefore people are not interested”, but what is being done to engage the public in developing both your enthusiasms for what we are talking about?

Sir Richard Leese: I do not think Greater Manchester combined authority has been particularly good either in its communications or its engagement strategy, which is something we are now putting right. I do not think our track record has been that wonderful, but I do not think you will engage lots of citizens by saying, “Let us have a chat about devolution”. The terminology is a bit of a turn-off, for a start.

Lord Judge: Decentralisation would not be any better, would it?

Sir Richard Leese: That would not be any better, but if you have a discussion with people and ask, “Do you think your hospitals should be run from Greater Manchester and how shall we do that?”—and people keep telling us that we ought to have more control over our bus services—in a sense what we are doing is responding to what people are telling us in the first place. People are engaged about public transport. They do not think it is very good and they think we ought to be able to do something about it. Engagement works both ways, and part of the engagement is us responding to what citizens say, and in that case we are. The conversation has to be about the real things that make a difference to people’s lives, not structural or fairly abstract concepts.

Lord Porter of Spalding: I would say exactly the same as Richard. The conversation needs to be about things people care about, and that is the service at the other end, not the process that delivers the service. To expect anybody to go out on positive engagement over creating a combined authority probably has no chance at all, Richard. No disrespect, but no matter how hard you tried in Manchester you would struggle to engage the imagination of the public when trying to convince them that this has suddenly become a sexy subject. It is going to be about services: “Do I trust politicians locally to have control over services, or do I trust this other bunch of politicians?”.

Lord Judge: May I suggest, and put to you so you can consider it, further information that we have been given? “The problem is that there is cynicism on the part of both central government and local authority leaders in the present situation to strike relatively secretive deals in order to transact power from one to the other”. Is that something that either of you recognise?

Sir Richard Leese: Relatively secret deals? In the first significant agreement, which was the one signed between Greater Manchester and the Chancellor of the Exchequer just over a year ago, a lot of the negotiation took place in the background, as negotiation always does, but those deals had to be ratified in a very public way individually by each of the local authorities in the area through their democratic process. It is like the signing of a treaty. As we know from our colleagues across the Atlantic, signing a treaty does not necessarily mean it is going to be ratified. The agreements had to be ratified in an open, transparent and democratic way.

Baroness Taylor of Bolton: But that did not involve people living in the area, except for the councillors. There is a feeling that your particular deal would not have got off the ground had you not had committed leaders in each of the authorities, and they then had to sell it to their councillors, and presumably their officials, rather than selling it to their electorates.

Sir Richard Leese: The first part of that is absolutely right. If we did not have committed leaders we would not have come to an agreement. It had to get buy-in from elected members across Greater Manchester and across parties as well. Since the Greater Manchester agreement was first signed—most of the potentially controversial detail was in that—each of those local authorities has had to go back to their electorate. The result of each of those local authorities going back to the electorate is that in every case the ruling party was returned for another term, so there is an endorsement through the ballot box for each of the local authorities.

Baroness Taylor of Bolton: It could be interpreted that way, but I doubt it featured much in the local election campaigns, and the turnouts were not great. I am not knocking the process, but on the basis of what has been said there is a long way to go before you can engage local government electors in a positive way, which is what you are trying to do. It is much easier to get them to vote against something like fracking or whatever. It really is quite a difficult job. Anti-Westminster or anti-London is a good theme, but I still think it is an uphill struggle.

Sir Richard Leese: I go back to what I said earlier. If you go out with a manifesto that says, “Vote for us because we are good at devolution”, you are absolutely right that you will not attract a lot of attention. However, “Vote for us because we are going to return the bus services back to local control”, is something that is very attractive to an electorate.

Lord Porter of Spalding: There is not a level of dissatisfaction with the agenda. I have seen the quotes you used—I cannot remember where they originated—but show us where in the local press local communities are kicking back against the authorities that are doing that. In most council areas, there are some people who are quickly able to write something to the local newspaper about anything we do. There is not that local kick-back against this agenda. It is not there. We have not gone to a referendum on whether we should do it or not, but if the public did not want us to do it, we would all know that the public did not want us to do it. MPs’ mailbags would be full of complaints. Council leaders’ mailbags would be full of complaints. The local papers would be full of people railing against it, but that is not the case. That is pretty much an endorsement by the public: “You are the politicians. We elect you to do stuff. If you keep doing the stuff we like we will re-elect you, but if you do stuff we do not like, then we will not elect you”.

Baroness Taylor of Bolton: I think most people in the north-west, even in Greater Manchester, are almost unaware of this happening. If a problem arises, they will be.

Lord Porter of Spalding: But it is not because they have been doing it in secret: “Oh, you are doing deals behind closed doors”. It is the weirdest set of open closed doors I have ever seen. It is all over the national press. I am sick of seeing him on national telly, with the Chancellor going up to shake his hand and bringing somebody from China and whatever else. It is not a secret thing. The public must be fully aware of it, and if they are bothered by it they would react to the fact that it is annoying them. They are not, so we can easily take that as support.

The Chairman: From the number and range of follow-up questions that you have heard from Members of the Committee, you have certainly engaged the interest of the Committee. We are enormously grateful to you for bringing to bear on these issues your direct personal experience, which is something we do not often get at these Committees. It has been very helpful to us and we are very grateful. We much appreciate you coming and we thank you very much.