The Heseltine Institute for Public Policy, Practice and Place, University of Liverpool – written evidence (FGU0055)

 

Submitted by Mrs Sue Jarvis, Co-Director, and Dr Tom Arnold, Research Associate, at the Heseltine Institute for Public Policy, Practice and Place, University of Liverpool

 

House of Lords Constitution Committee inquiry into the Future Governance of the United Kingdom

 

Summary & Key Recommendations

 

About the Heseltine Institute for Public Policy, Practice & Place

The Heseltine Institute is an interdisciplinary public policy research institute which brings together academic expertise from across the University of Liverpool with policy-makers and practitioners to support the development of sustainable and inclusive cities and city regions.

The Institute has a particular focus on former industrial cities in the process of regeneration, such as the Liverpool City Region (LCR). Through high impact research and thought leadership, knowledge exchange, capacity building, and evidence based public policy, the Institute seeks to address key societal challenges and opportunities pertaining to three overarching themes: 21st Century Cities, Inclusive and Clean Growth, and Public Service Innovation.

This submission is based on work undertaken by the Heseltine Institute over several years. Working with local partners, including Liverpool City Region Combined Authority and the elected mayor of LCR, we have helped to develop local understanding of how English sub-national devolution can shape the city region’s economy and society. In 2019, a review of Liverpool City Region’s devolution journey by Professor Michael Parkinson of the Heseltine Institute and colleagues from Liverpool John Moores University identified strong support amongst local leaders for further devolution over key policy areas, and in turn a commitment to be held accountable for local policy successes and failures (Parkinson et al 2019).

Over the last 18 months, we have published a series of policy papers addressing issues related to devolution and local governance, in the context of the social, economic and health impacts of the pandemic. These include:

This submission utilises extensive research on devolution and decentralisation to propose a series of long-term reforms. The proposals included here are aspirational and acknowledge that moving power out of Westminster must be done carefully and with recognition of the varying circumstances of cities and regions across England. However, we believe it is important to establish a roadmap for devolution and for government to set out the overarching aspirations for its levelling up agenda.

This submission has been prepared by:

 

Review of current devolved structures in England

Over the last decade, there has been a high degree of institutional churn in sub-national governance structures in England. Following the abolition of the Regional Development Agencies and Government Offices for the Regions in 2011, new regional and city-regional institutions introduced in the period since include:

This patchwork of devolved structures has been developed through various pieces of legislation, most notably the Local Democracy, Economic Development and Construction Act 2009, Localism Act 2011, Cities, and Local Government Devolution Act 2016. Alongside these structural reforms, there have been a series of policy agendas set out by government, expressing various ‘spatial imaginaries’ – ways of representing and talking about places to reflect a set of particular preferences or underpinning beliefs. Over the last decade, these have oscillated between:

Devolution arrangements have tended to be organised through various ‘deals’ between central government and local political leaders. Devolution deals have been characterised as “contract-style agreements between central government and local public bodies, to pursue agreed outcomes in discrete policy areas where a common interest can be identified” (Sandford 2017: 64), and as a menu of policy options in which a number of devolved powers are available as standard to most areas, but with each deal consisting of some unique elements (Sandford 2020). Powers devolved to all or most combined authorities in England include: adult education; aligning business support (e.g. growth hubs); spatial planning and some powers over housing; public transport, including bus franchising in some areas; and transport infrastructure through the Transforming Cities Fund. Bespoke deals have been agreed with West Midlands CA, GMCA and West of England CA on funding for affordable housing. Two devolution deals (Greater Manchester and Cornwall) include significant powers and funding for health and social care.

However, the levelling up agenda more broadly is increasingly centrally directed, and appears somewhat disconnected to earlier attempts at devolving powers and funding to English regions and city-regions. It is crucial that sub-national development policy is place-sensitive, meaning it acknowledges the differences between places and the kinds of policies they need to adopt to improve economic, social and health outcomes. Local authorities, combined authorities and mayors do not currently have sufficient clout or funding to genuinely shape outcomes in the places they represent.

The cumulative outcome of recent changes to sub-national structures and the deal-based approach to their introduction is a complex, spatially variegated patchwork of institutions across England. In some areas, particularly city-regions with strong local identities such as Liverpool City Region, and those with established cross-boundary governmental structures such as Greater Manchester, sub-national devolution appears to be broadly supported and, to an extent, understood by the wider public. The introduction of elected mayors in these and other areas has provided a welcome platform for engagement with central government and civil society more broadly. However, amongst the public at large there appears a degree of confusion about what combined authorities, elected mayors and other sub-national bodies do, and in some cases which places they represent. This lack of clarity has come to the fore during the recent Covid-19 crisis, when restrictions on movement, social interaction and economic activity have been implemented differently across England.

Any reform of local and sub-national government through the forthcoming white paper should therefore acknowledge that the current situation is sub-optimal, that deal-based approaches to devolution are hugely time-consuming for both central and local government, and that they have added unnecessary friction to intergovernmental relations in England. The proposals offered in this response are therefore based on four overarching principles:

 

Structure and geography of future devolution settlements

Following the election of West Yorkshire’s first metro mayor earlier this year, 40% of England’s population is now governed by directly elected regional mayors. While combined authorities have emerged as the main focus of decentralised governance over the last decade in something of an ad hoc and uneven manner, they nevertheless form the bedrock on which future English devolution reform should be built. A return to the institutional churn which saw regional offices abolished at the beginning of the 2010s should be avoided, and existing institutions should be nourished and developed rather than replaced.

The question is therefore how to expand the combined authority and elected mayor model to the rest of England, particularly areas with no clear metropolitan ‘centre’ or other easily defined spatial focus. We support Lord Heseltine’s proposal in his 2019 Empowering English Cities report that the Boundary Commission should be tasked with reviewing Combined Authority boundaries along with its current role of regularly assessing parliamentary constituencies. Government should establish an objective for all parts of England to be covered by a combined authority by 2030, with a clear preference for directly elected mayors where this is agreed with local leaders. Proposals to abolish county councils and establish a single layer of unitary authorities across England will undoubtedly meet some political resistance. Nevertheless, there is a clear case for simplification of the current patchwork of sub-national governance structures. This should extend not only to local authorities but to organisations such as LEPs which do not appear to be well understood by the general public. Future devolution should seek to bring further clarity in this area, where possible bringing institutions such as LEPs under the control of democratically accountable combined authorities and elected mayors.

In reviewing potential new combined authorities, the Boundary Commission should take into consideration the following factors and acknowledge the need to balance local democratic accountability, governmental effectiveness, and the need for stable and consistent sub-national arrangements.

Identity

Devolved institutions are unlikely to be sustainable in the long-term if there is significant local opposition to their introduction. Powerful regional and sub-regional identities have helped to facilitate the development of larger-than-local government structures in areas such as Cornwall (Everett and Aitchison 2008) and Greater Manchester (Haughton et al 2016; Ward et al 2015; Hincks et al 2017). However, mismatches between political geographies and local identities have stymied previous attempts at sub-national devolution, most notably in the case of the failed attempt to establish a North East Regional Assembly via a referendum (Sandford 2009). It is therefore essential that combined authority boundaries reflect local support and do not unnecessarily cut across physical or imagined boundaries. It is also important to acknowledge that local political boundaries are often contested, particularly in peripheral areas.

Economic Geography

The Cities and Local Government Devolution Act 2016 removed a number of restrictions on the geography of combined authorities and allowed local authority areas not immediately adjacent to each other to be part of a combined authority. While this greater flexibility is welcome, combined authority boundaries should ideally have some basis in functional economic areas, and reflect the reality of economic life for residents in the area. Considerations should include: housing market areas; transport patterns; local health and social care provision; and the labour market.

Population

There is currently a wide divergence in population size between the largest combined authorities (West Midlands, Greater Manchester, West Yorkshire) and smallest (Cambridgeshire & Peterborough and North of Tyne). While to some extent these differences are inevitable, there should be a level of consistency in the size of devolved administrations, and the rationale for geographic selection. An exception could be made in the case of large, sparsely populated rural areas with distinct identities, such as Cornwall.

Governance

A directly elected mayor and combined authority structure provides strong and accountable leadership on strategic issues, while protecting the integrity and existing functions of local authorities. By drawing together previously fragmented powers on transport, economic development and skills, this model has over recent years demonstrated the ability to align policy priorities and spending. The elected mayor and combined authority model also aligns with the principle that city regions are greater than the sum of their parts and can act on strategic issues that cross local authority boundaries. This will be particularly important as local areas recover from the COVID-19 pandemic.

 

Powers and funding

Since 2010, local authorities have experienced significant cuts to their budgets as a result of reductions in government grant funding. Local authorities in Liverpool City Region lost 28% of funding, equivalent to £336 per resident – almost twice the England average of £188. The increased use of project specific, one-off funding does not represent a sustainable replacement for these significant reductions in local government budgets. It is particularly concerning that many of the recently announced funds, such as the Towns Fund and Levelling Up Fund, are designed solely for capital projects, undermining the ability of councils to coordinate programmes and spending to address local needs and priorities.

Recent years have seen extensive steps taken to deliver more flexibility for mayors and combined authority leaders to determine local priorities and deliver on their manifesto pledges. For example, Liverpool City Region Combined Authority uses its devolved policy making to align funding streams at the local level (via its Strategic Investment Fund) and prioritise spending. However, in comparison to other nations in Western Europe, sub-national government in England has little ability to raise revenue itself, and is therefore highly reliant on central government grant funding. In Germany for example all 3 levels of sub-national government (local municipalities, districts, and Länder/states) have extensive tax raising powers, and over 30% of tax revenue is taken at the sub-national level compared to under 5% in the UK. In Spain, local and regional taxes account for 23.6% of total tax income, in Italy the figure is 16.5% and even France, historically regarded as a highly centralised state, 13% of tax revenue is taken locally (OECD 2020). While London has more extensive income generating powers than other English cities, particularly through the operation of its public transport network, 70% of its revenue comes from central government compared to 26% in New York, 16.3% in Paris and 5.6% in Tokyo. The case for greater fiscal devolution to local and combined authorities in England is also strengthened by the recent transfer of powers over property taxes in Wales and income tax in Scotland (Bosetti and Brown 2017).

In addition to this disparity between the UK and the majority of OECD countries in how tax revenue is collected and distributed, local authorities face severe financial shortfalls, even before the impact of COVID-19 is taken into account. In 2019/20, local authorities in England faced a cumulative deficit of £19.4bn (NEF 2019). While plans have been in place for a number of years to allow local authorities to keep all revenue from business rates, a wider and more flexible range of taxation powers will be needed to ensure different places can tailor their approach to fiscal decentralisation in the most locally appropriate ways.

An immediate and rapid move towards fiscal decentralisation is likely to be impractical. Institutional capacity varies significantly between combined authorities and governance structures are better established in some areas (notably Greater Manchester, while significant improvements have been made in Liverpool City Region, the West Midlands, West Yorkshire and Tees Valley) than others. However, we recommend that allowing local and combined authorities more power over taxation and spending should be an underpinning objective of sub-national devolution in England. In 2014, IPPR North recommended a time frame of two full parliaments to deliver a phased programme of decentralisation, setting out clear milestones along the path and providing five-year funding settlements for sub-national bodies to provide stability (Cox et al 2014). More recently, the UK2070 Commission recommended the establishment of an independent commission to assess how fiscal devolution should be achieved and the necessary fiscal stabilisers needed to underpin the transition to a new funding model for sub-national government (UK2070 2020).

It will be important to consider the potential for fiscal devolution to have regressive impacts that could exacerbate inequalities between different parts of England. Long-standing disparities in wealth and income mean London and the South East have a wider tax base to draw on in the event of fiscal devolution. In London, for example, 22.9% of taxpayers pay a higher or additional rate of income tax. In the North West, this figure is 10.7%. All English regions apart from London, the South East and the East of England currently have net fiscal deficits (ONS 2019). It is clear that many areas of England do not have sufficient institutional capacity to accept greater fiscal responsibility. Fiscal transfers will still then be required to smooth any transition to greater sub-national fiscal autonomy, and these stabilising measures should be an important part of a review into how fiscal devolution could be carried out. In addition, the review should consider the institutional reforms needed to deliver more sub-national tax and spend powers over the next decade. Discussions with those currently operating in local and sub-national government should form an important part of this analysis. A series of options for specific fiscal powers to be devolved have been debated over recent years, including:

The area in perhaps most urgent need of reform is the property tax system. A comprehensive review of Council Tax should form an important part of any review into rolling out fiscal devolution. Council Tax levies are still based on 1991 property values and therefore have little basis in the reality of land and property values today. Options for reform include revaluation under the current system or the addition of more council tax bands. However, more comprehensive reform could come in the form of a land value tax (LVT), which has received significant political support in recent years. A range of proposed LVT models have been put forward in recent years, including by the New Economics Foundation (Arnold et al 2019), the UK2070 Commission (Falk 2019) and the IPPR Commission on Economic Justice (Murphy 2018).

The UK government plans to replace European Union structural funds with the UK Shared Prosperity Fund (UKSPF) from April 2022. EU regional funding was directed to places considered in need of economic development as part of an objective to reduce regional economic disparities both between and within member states. While funding allocations varied over time, parts of England benefitted significantly from these funds over several decades. Between 2014 and 2020, Liverpool City Region received €221m which was spent on a variety of regeneration and sustainability projects. The recent Autumn Budget included provision of £2.6bn for UKSPF over the 2020-25 period. However, at the time of writing it is unclear how this funding will be allocated, and this figure is well below the £7.7bn provided by the structural funds between 2014 and 2020. It is concerning that 20% of the UKSPF has already been allocated to fund Multiply – a scheme designed to improve numeracy levels amongst adults. It is crucial, to maintain public trust and ensure local leaders and institutions are involved in the levelling up agenda, that UKSPF funding processes are transparent and the criteria for directing funds to particular areas is clear. Metro mayors, combined authorities and other local leaders should be engaged throughout the UKSPF allocation process to ensure funded projects closely align with local needs and priorities.

Finally, government should devolve a significant share of the national Research & Development budget to local and sub-national institutions. The UK government has set a target of 2.4% of GDP to be spent on R&D by 2027. Spending on R&D has significant implications for local economies, so it is therefore essential that accountable local leaders are involved in determining where research funding is invested. Nesta recommends giving control over 25% of UK R&D funding to the devolved nations, regions and localities to bridge the research funding gap between the ‘Golden Triangle’ of London, Oxford and Cambridge and the rest of the country (Falconer 2019). In return for more powers over R&D spending, local and sub-national institutions should enhance partnerships with higher and further education, and the private sector, with a particular focus on ‘mission-orientated’ research directed towards tackling key societal challenges such as climate change, industrial strategy, automation, skills, improving care for older people, building homes for the future and, in light of the COVID-19 crisis, planning for future pandemics.

 

Improving intergovernmental relations

The COVID-19 crisis and its widely differing effects on different parts of England have highlighted the need for improved co-ordination between central and local government. Discussions regarding the movement of areas between ‘Tiers’ in autumn 2020 were hugely time-consuming, resource intensive and in some cases politically charged. The implementation of a relatively modest set of intergovernmental structures would help to improve relations. In England, sub-national government is tasked with managing and delivering a range of centrally designed and funded programmes, yet relatively little attention is paid to the mechanisms that facilitate efficient relations between different levels of government.

Intergovernmental relations are fundamental to multi-level systems of government and already play an important role in the UK in the case of interactions between the UK government and the devolved administrations of Scotland, Wales and Northern Ireland. Work by the Bennett Institute of Public Policy and the Centre on Constitutional Change has highlighted the need to improve not only intergovernmental relations between the nations of the UK, but more broadly to recognise the reality that the UK is now a multi-level political system (McEwen et al 2018). In some nations, particularly federal or highly decentralised states such as Belgium, Italy and Spain, formal structures for intergovernmental relations are articulated explicitly in the constitution (McEwen et al 2020). While we recognise that such formally embedded arrangements may not be appropriate for England, more flexible arrangements can be utilised to improve intergovernmental relations.

Intergovernmental forums are a common institutional fix for coordinating relations between national and sub-national governments in many nations. In parliamentary systems, a form of ‘executive federalism’ is common, whereby interaction between central and sub-national government can involve a range of councils and committees, along with regular discussions between officials (Phillimore 2013).  Until its very recent abolition during the COVID-19 crisis this year, Australia’s Council of Australian Government (COAG) was one of the most prominent examples of formal intergovernmental interaction. COAG consisted of the prime minister, leaders of the six Australian states, chief ministers of the Australian territories, and the head of the national association of local governments.

An equivalent English intergovernmental forum could include: the prime minister or a senior government minister; the mayors/leaders of the combined authorities; the chief executive and chair of the strategic transport bodies (e.g. Transport for the North); and the chair of the Local Government Association. The forum could meet quarterly or every six months, with the objective of identifying and debating strategic issues related to devolution and local government. In addition, more formal and regular structures should be developed to facilitate relations between ministers and local leaders on specific policy areas where local government has responsibility for delivery, such as transport, public health, education, housing and social care.

References

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Bosetti, N. and Brown, R. (2017) Open City: London after Brexit. London, Centre for London. Available at: https://www.centreforlondon.org/reader/open-city-london-after-brexit/fiscal-devolution-and-reform-to-strengthen-london/#council-tax-reform

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17 November 2021

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