Written evidence submitted by the National Audit Office [PDE 024]
1 This briefing paper comprises a summary of the work which the National Audit Office has produced in response to the moves the central government has made to devolve powers, freedoms and flexibilities to predominantly urban areas in England.
2 The committee’s inquiry is examining the impact of devolving increased powers in the cities and regions where deals have been agreed and consider how any benefits can be realised in more areas of the country. It is investigating the effectiveness of the current strategy of developing bespoke deals region by region and asking if increasing available powers without wider systemic changes would produce similar benefits. The Committee is also investigating the roles of directly elected mayors, quality of scrutiny in decision making and public accountability.[1]
3 The NAO has produced the following reports which are relevant to the Committee’s inquiry:
• Devolving responsibilities to cities in England: Wave 1 City Deals (2015)[2]
• English Devolution Deals (2016)[3]
• Local Enterprise Partnerships (2016)[4]
• Progress in setting up combined authorities (2017) [5]
• Investigation into the governance of Greater Cambridge Greater Peterborough Local Enterprise Partnership (2018)[6]
• Local Enterprise Partnerships: an update on progress (2019) [7]
4 Our reports into devolution and increasing local flexibility has thrown up continuing and common themes. These are summarised below along with the relevant terms of reference of the Committee's inquiry:
• The importance of proper accountability structures particularly when government is using the tool of individually negotiated deals with individual places which vary from one another. (Relevant to TOR - The potential scope of a devolution framework. Whether the current practice of bespoke deals for local areas is working or should some powers be made available to any local authority that chooses to adopt them and Governance and accountability: the impact of elected mayors and whether they are necessary to make devolution a success. Public engagement with the devolution process and how scrutiny is working in practice.)
• There is a need for proper monitoring of what has been achieved through these various means. This includes robust cost and output data on jobs, housing, increased inward investment and so on. (Relevant to TOR The success and scope of devolution deals implemented, including the impact on local economies and health economies and the progress of all bids submitted by the September 2015 deadline.)
• And over and above monitoring of outputs, there is a need for government to have a robust evaluation plan built in at the start of different policy initiatives to increase knowledge of what works and how achievements can be replicated and maximised. (Relevant to TOR The success and scope of devolution deals implemented, including the impact on local economies and health economies and the progress of all bids submitted by the September 2015 deadline.)
• Across Whitehall, the commitment of different departments to the principles of devolution varies and this has caused delay in putting some initiatives into action. (Relevant to TOR The commitment to devolution across Government and capacity in Whitehall to promote and monitor devolution, including the Government’s ability to capture relevant data at the right level – for example, in city region and combined authorities to assess the effectiveness of deals.)
• Making a success of devolution relies in large part on local government which has seen sustained reductions in central government support since 2010 and therefore reductions in capacity. Our report on financial sustainability shows that local authority spending power will have fallen by 28.6% by 2019-20 and the sector as a whole is weakening financially. (Relevant to TORs The adequacy of existing sources of income and the potential need for more sources of income for local authorities that acquire more powers. Whether further business rate retention would provide additional funding for devolved services and How access to new sources of income – for example business rate growth – have impacted local areas and how broader devolution of financial powers will affect the success of the policy. )
• With devolution and the introduction of combined authorities, inherently complex structures have been introduced into England’s already complicated local government arrangements. (Relevant to TOR Further powers that local areas have accumulated over time and powers they should have which they don’t have already, including the specific case for London.)
5 Moves in devolution are inextricably linked with initiatives aimed at increasing local economic growth, based on the economic theory of agglomeration: that cities are important for economic growth. In England, 74% of the population live in cities and 78% of jobs are in cities. Since 2010, the government has aimed to create economic growth by shifting powers to local leaders and businesses, particularly in cities. The following sections set out the detail findings of our reports into devolution and devolution related topics.
6 Wave 1 City Deals were the first in a line of government deals designed to shift responsibility for creating local growth to local leaders and businesses. In 2013 and 2014, the government agreed a second wave of City Deals with 18 more places. New devolution deals with Sheffield, Greater Manchester and Leeds followed in 2014 and early 2015, providing more flexibilities than the City Deals. The government also made Growth Deals with England’s 39 Local Enterprise Partnerships (LEPs), worth £2 billion in 2015-16.
7 The government announced its plan to negotiate ‘City Deals’ with local leaders in its 2011 paper, Unlocking growth in cities. The aim was to make deals that empowered cities to boost local economic growth and in 2012, the government signed the first 8 City Deals. Known as Wave 1, the deals covered England’s ‘core’ cities – the cities at the centre of the 8 economically largest areas in England, outside London. In 2014, the 8 cities and their wider regions had a combined population of over 12.7 million. The deals were individual to each city and covered a range of policies, such as transport, housing and skills.
8 Promoting greater joint working between central and local government is not new. City Deals, however, were a new way of working. They provided local places with a chance to set out their own priorities and negotiations allowed local leaders to explain their growth priorities directly to senior government decision-makers. In response, central government committed to removing barriers to cities’ growth plans by providing funding and devolving specific decisions. The cities were primarily responsible for then implementing programmes agreed in the deals, with government support.
9 In total, the government committed up to £2.3 billion to around 40 programmes in the deals, spread over some 30 years. The government expected almost all of this funding to be capital, for local authorities to invest in assets such as buildings and roads. The government expected local authorities and their partners to use existing resources to manage the deals’ programmes. It also asked cities to set out robust accountability and decision-making structures to manage the deals.
10 Our report concluded that City Deals had demonstrated a new way of working between central and local government: they enabled cities to present their local economic policies directly to government decision-makers. This was an important catalyst for cities to develop their strategies, capability and capacity to manage devolved funding and increased responsibility.
11 However, some programmes in the deals had had an early impact, but there were delays to some programmes that proposed innovative funding and assurance arrangements. The need to align local decision-making with Whitehall departments securing assurance caused challenges for programmes reliant on new funding arrangements. Delivering the deals requires a long-term commitment from government and cities to monitor projects and the deals as a whole. When we reported, it was too early to say if the deals would have any overall impact on economic growth. Without a shared approach to measuring the impact of the programmes, both sides’ understanding of their impact will remain limited which is an important weakness. We said that developing a robust, shared approach to measurement would be key to understanding what initiatives were likely to have the biggest impact on growth and therefore provide value for money in a more devolved environment.
12 By the time of our report, ten devolution deals had been agreed. All transferred powers, funding and accountability for policies and functions previously undertaken by central government. The specific arrangements varied in each case, as they are negotiated and agreed separately based on local proposals.
13 The transfer of functions ranged from full devolution of powers and funding to higher-level statements that set out a shared commitment to explore new approaches. In many cases, new governance and administrative arrangements were to be established in the form of combined authorities with directly elected mayors spanning multiple existing local authority areas. The Cities and Local Government Devolution Act 2016 is the legislation that underpins many aspects of these devolution deals.
14 Within central government, HM Treasury and the Cities and Local Growth Unit (a joint unit of the Department for Communities and Local Government, and the Department for Business, Innovation & Skills) were responsible for coordinating the negotiation, agreement and implementation of devolution deals on behalf of central government as a whole.
15 We concluded in our report that there were risks, both in central government and local areas, in progressing devolution deals within a challenging financial environment, and questions about the future role of government departments. In central government, the departments essential to making devolution deals work effectively are some of those facing the biggest spending reductions between 2015-16 and 2020-21. Despite the Cities and Local Growth Unit increasing its staffing levels, local areas were concerned about central government’s capacity to manage the negotiation and implementation of large numbers of deals simultaneously, and whether the Cities and Local Growth Unit would have the influence across government to maintain a sustained commitment from all relevant departments should the current levels of senior political commitment to the devolution agenda decline.
16 The range and variation in policy areas included in deals mean that the future service roles of government departments may be variable with regard to differently devolved parts of the country, with implications for the capacity and capability they will require in the longer term. For local areas devolution deals include mostly new and additional functions and responsibilities to those already undertaken by local public bodies. However, this should not mean that the financial implications of the deals be considered in isolation of the wider financial position for public services. The theory that supports calls for devolution – that planning and organising services across institutional and geographical boundaries will lead to more integrated and efficient services – also depends on the ongoing sustainability of local organisations that play a role in this integration. National Audit Office and Committee of Public Accounts reports have highlighted ongoing concerns about the financial sustainability in a range of local public services that are either included in the deals or instrumental in making them work, including local government, health, further education and policing.
17 Both central government and local bodies consider that the deals offer opportunities to stimulate and rebalance economic growth more effectively, and reform public services so that they are better designed for local users, leading potentially to better outcomes and improved value for money. While these assumptions respond to recognised barriers to achieving value for money, such as a failure to be locally responsive and to integrate services around users, they are untested.
18 Devolution arrangements are experimental and unlikely to work as intended in all areas and for all functions and services devolved. Local areas start from different places in terms of their history and strength of joint working. The government could do more to provide confidence that devolution deals can support economic growth and better value for money by resolving the issues we have identified relating to accountability, administrative geography and impact measurement.
19 Central government in England has sought consistently to stimulate and rebalance economic growth between different regions. In 2010, the government set out its plans for local economic growth in the white paper, Local growth: realising every place’s potential. This detailed the government’s objective of achieving “strong, sustainable and balanced growth that is more evenly shared across the country and between industries.” It also set out the government’s new approach to local economic growth, under which power is devolved to communities to ensure that “where the drivers of growth are local, decisions [are] made locally.”
20 Key to plans for local economic growth are Local Enterprise Partnerships (LEPs). These are business-led partnerships between the private sector and local authorities established with the purpose of steering growth strategically in local communities. Following the abolition of the Regional Development Agencies in 2010, 39 LEPs were established in England, with each designed to represent a functional economic area. The government intended LEPs to be strategic partnerships that are not resource-intensive to run, with delivery of growth programmes implemented through partners, supported by the private sector. The government did not stipulate the structure LEPs should take; they have mostly established themselves either as companies limited by guarantee or as voluntary partnerships.
21 Since 2010, LEPs have taken on increased responsibility for significant amounts of central government funding. The government responded to Lord Heseltine’s 2011 review, No Stone Unturned, by announcing the creation of the £12 billion Local Growth Fund for the period 2015-16 to 2020-21. In 2014, the government announced that it had agreed Growth Deals with each of the 39 LEPs, through which it indicatively allocated £6.3 billion of the Local Growth Fund. Each LEP’s Growth Deal was awarded based on the strength of their multi-year strategic economic plans. A further £1 billion was allocated in January 2015, making the total allocation to date £7.3 billion. In addition to their role in local economic growth, the government regards LEPs as essential to its progressing English devolution agenda.
22 Our report concluded that the role and remit of LEPs expanded further both significantly and rapidly: from April 2015, LEPs became responsible for directing the £12 billion Local Growth Fund negotiated via Growth Deals. The Department expects LEPs to deliver Growth Deals effectively and sustainably. However, when the Growth Deals were agreed, the Department did not have enough assurance that they had the resources, capacity and capability to do this, and LEPs do not yet have an established track record of delivery. Our work shows that LEPs themselves have serious reservations about their capacity to deliver and the increasing complexity of the local landscape, and there is a risk that projects being pursued will not necessarily optimise value for money.
23 The Department has adopted a ‘light touch’ approach to overseeing Growth Deals and it has not yet tested their assurance mechanisms, which our works shows are underdeveloped. LEPs themselves are not as transparent to the public as we would expect given that they are now responsible for significant amounts of taxpayers’ money. The Department did not set clear objectives for what it wanted to achieve through Growth Deals, meaning that it is difficult to assess their success.
24 The Department needs to think through the levers and measurement criteria it needs to understand whether value for money is being achieved by LEPs. It has not done so to date, and this currently presents a threat to future value for money.
25 Combined authorities are corporate bodies formed of two or more local government areas, established with or without an elected mayor. They enable groups of two or more councils to take decisions across boundaries on issues which extend beyond the interests of any one individual local authority. The first combined authority to be established was in Greater Manchester in 2011, with the purpose of formalising joint working on economic regeneration and transport across its 10 individual district councils. A further eight combined authorities have been formed since then, with the most recent established in March 2017. In May 2017, six combined authorities held their first mayoral elections, and a seventh plans to do so in 2018. Two combined authorities currently have no plans to have mayors.
26 The government has seen the formation of combined authorities as the next step in devolving power and spending from Westminster to individual areas, formalising joint working which may have been in place for some time. The government has also seen combined authorities as central to its efforts to stimulate economic growth outside the economically higher performing regions of London and the South East.
27 Our report concluded that there is a clear purpose to establishing combined authorities, especially in metropolitan areas, and the Department worked at pace to make sure areas were ready for the mayoral elections in May 2017. As economies and transport networks operate at a scale greater than individual local authority areas, there is a logic to establishing strategic bodies designed to function across conurbations and sub-regional areas. Formalising joint working in statute gives them additional powers over their constituent areas which are not in place for joint committees formed of local authorities.
28 However, evidence that investment, decision-making and oversight at this level is linked to improved local economic outcomes is mixed and inconclusive. Combined authorities themselves often assume in their plans that there is a strong link between investment in transport and economic growth, for example. Despite this, evidence on the additional value that governance at this level can bring to economic growth is mixed, and combined authorities’ administrative boundaries do not necessarily match functional economic areas, or the existing boundaries of local enterprise partnerships. We assessed combined authorities’ draft monitoring and evaluation plans, and found that while they are working to link spending with outcomes and impact, they vary in quality, and measures tend to vary depending on data already available.
29 Combined authorities are not uniform, and vary in the extent of the devolution deals they have struck with government. Combined authority areas and their powers, functions and funding have been determined by local authority leaders and negotiated with the Department. The combined authority with the greatest degree of devolution, Greater Manchester, has now absorbed control over the office of the police and crime commissioner and fire and rescue service. Others are primarily focused on transport issues at the moment, such as bus franchising. Tees Valley is the only combined authority to have requested legislation at this point to establish a local development corporation.
30 A number of areas have been unable to bring local authorities together to establish combined authorities. Local authorities in Greater Lincolnshire and East Anglia agreed in principle to devolution deals with the Department which would have required the formation of a combined authority. However, they were unable to agree the terms of the deal locally and were therefore unable to form combined authorities. In the 2010 Parliament, the government moved to a preferred model of including elected mayors in devolution deals on the grounds that they enhance accountability and oversight. The North East and West Yorkshire are combined authorities without mayors, and with only the ‘first stage’ deals that transfer some powers to combined authorities. The North East had negotiated a devolution deal but it was withdrawn by the Department following opposition to it from local authorities around issues including an elected mayor. These examples suggest that there is a strong perception in certain areas that the government’s preferred model – of a combined authority with an elected mayor – is unsuitable to their local context.
31 Areas with a long history of working together have found it most straightforward to establish combined authorities. In Greater Manchester, for example, combined authority structures and increasingly devolved powers have essentially been grafted onto joint working between neighbouring local authorities established over several decades. The real test will be whether combined authorities without such a favourable history succeed.
32 Our report concluded that there is a clear purpose to the existence of strategic bodies, particularly in metropolitan areas dealing with cross-cutting issues such as transport and economic regeneration, and the Department worked at pace with local areas to be ready for the mayoral elections in May 2017. These newly elected mayors could provide city regions with a greater voice on the national stage. However, with the introduction of combined authorities, inherently complex structures have been introduced into England’s already complicated local government arrangements. For combined authorities to deliver real progress and not just be another ‘curiosity of history’ like other regional structures before them, they will need to demonstrate in an accountable and transparent way that they are able to drive economic growth, contribute to public sector reform and help to deliver improved outcomes in their areas.
33 We investigated governance concerns about GCGP LEP raised by a local MP. The Department found that its local assurance framework did not comply with the national framework and that it was unable to respond effectively to the concerns raised by the MP. The Department was also concerned about the timeliness and availability of board papers and the management of conflicts of interest.
34 Following its review, the Department withheld funding from the LEP and it eventually dissolved itself. It has now been reconstituted as a strategic advisory board to the combined authority.
35 The Department then asked one of its non-executive directors to carry out a national review of LEP governance and transparency (the Mary Ney Review). This was to assess whether the Department’s systems provide sufficient assurance to the accounting officer and ministers. The Mary Ney Review began in April 2017 and was completed in July 2017 and published in October. It has accepted all the recommendations and produced guidance to implement the recommendations.
36 We then reported on how much progress had been made in improving LEP governance and assurance. Our report concluded that with the significant amount of public funding now delivered through LEPs and the failure of GCGP LEP, there was a clear rationale for more demonstrable good governance in LEPs and better oversight by the Department. We recognise the inherent tension the Department faces in developing a system of governance over a delivery model based on the devolution of funding and responsibilities to ad hoc, business-led partnerships. The Department has responded by implementing the recommendations of the Ney Review and some of those made by the Public Accounts Committee. While the assurance framework is stronger, backed up by checks on compliance, it is not proven yet whether these measures will be effective in detecting and responding to governance failures over significant sums of public money.
37 The Department’s accounting officer is accountable for the Local Growth Fund delivered through LEPs. However, the Department has made no effort to evaluate the value for money of nearly £12 billion in public funding, nor does it have robust plans to do so. The Department needs a grip on how effectively these funds are used. It needs to act if it wants to have any hope of learning the lessons of what works locally for future interventions in local growth, including the new UK Shared Prosperity Fund, planned for 2020-21.
August 2019
[1] https://www.parliament.uk/business/committees/committees-a-z/commons-select/housing-communities-and-local-government-committee/inquiries/parliament-2017/progress-devolution-england-inquiry-17-19/
[2] https://www.nao.org.uk/report/devolving-responsibilities-to-cities-in-england-wave-1-city-deals/
[3] https://www.nao.org.uk/report/english-devolution-deals/
[4] https://www.nao.org.uk/report/local-enterprise-partnerships/
[5] https://www.nao.org.uk/report/progress-in-setting-up-combined-authorities/
[6] https://www.nao.org.uk/report/investigation-into-the-governance-of-greater-cambridge-greater-peterborough-local-enterprise-partnership/
[7] https://www.nao.org.uk/report/local-enterprise-partnerships-an-update/