Combined Authorities (Finance) (Amendment) Regulations 2024
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Baroness Swinburne
That the Grand Committee do consider the Combined Authorities (Finance) (Amendment) Regulations 2024.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Swinburne) (Con)
My Lords, the regulations before us were laid before the House on 21 March. They will, if approved by Parliament, complete the legislative framework for the funding of the new combined county authorities.
In recent months, similar secondary legislation has been made to provide rules for the election and by-election of combined county authority mayors, as well as for their overview and scrutiny and audit committees. Today’s statutory instrument is the last key building block in the architecture of legislation for combined county authorities as a category. These regulations will provide for mayors of the new combined county authorities to set budgets for the costs of their functions and raise a precept for those costs, subject to consideration and a vote by the combined county authority. They also provide for a mayoral fund.
As with preceding legislation, we are following the principle that provision for combined county authorities should be the same as that for combined authorities. The regulations do this by amending the Combined Authorities (Finance) Order 2017 to apply its measures to combined county authorities. The 2017 order provides for an effective process aligned with wider local government budgeting timetables, including robust arrangements for scrutiny and challenge of the mayor’s spending proposals by the combined authority. The effect of that application to combined county authorities is in essence identical and is as follows.
There is a requirement for combined county authority mayors to submit, by 1 February, a draft budget to their combined county authority for consideration; for the combined county authority to recommend any amendments to the draft budget before 8 February; and for the mayor to consider these amendments and respond with a further proposal if they choose to do so. Ultimately, the constituent members of the combined county authority may impose amendments to the mayor’s draft budget if supported by a significant majority—usually two-thirds. In the absence of this majority, the mayor’s proposals are deemed to be accepted by the combined county authority.
The combined county authority must set a mayoral budget on the mayor’s behalf if the mayor fails to submit a draft for consideration by 1 February. The mayor may fund mayoral functions through a precept. The standard local government finance regime applies so that precepts must be issued by 1 March; mayoral costs are itemised separately on council tax bills; and, where the mayor exercises police and crime functions, these are listed separately. To aid transparency further, the mayor is required to maintain a fund in relation to the receipts and expenses of the mayor’s functions—excluding police and crime commissioner functions, for which there is a separate police fund.
As for consultation, before introducing the original 2017 order for combined authorities, the Government undertook an informal consultation with officers of the constituent councils of then current and prospective combined authorities, including via a working group of senior finance officers. Our inquiries with finance officers of existing mayoral combined authorities during the development of these draft regulations found no operational difficulties in the existing arrangements. The regulations therefore simply extend the application of the existing provision, in line with the broader policy of parity between combined county authorities and combined authorities.
These draft regulations will apply the regime already in place for combined authorities to combined county authorities to support their mayors in funding their functions through a precept, where they choose to do so. They prescribe a tried and tested budget-setting process that allows for effective challenge and robust and transparent scrutiny by the combined county authority. I commend the draft regulations to the Committee.
Baroness McIntosh of Pickering (Con)
My Lords, I thank my noble friend for presenting the statutory instrument before us. It gives us the opportunity to try to better understand what the financing of the new mayoral authority will be. I am grateful to her for setting these provisions out.
I understand that we have moved away from the district and borough model. We were told that that was to save money, but now we have the regulations to show that there is to be an extra precept on those living in, for example, York and North Yorkshire Combined Authority as well as the new authority—I am not quite sure what it is called—that I understand encompasses Newcastle, Sunderland, Northumberland, Durham and everywhere other than Tees Valley.
It would help my understanding, and that of people living in these areas, to hear how that money will be raised. In connection with the powers that I understand the mayors will have in these combined authority areas, they will take on the responsibilities of the police, fire and crime commissioners. They will also have powers over transport, housing, adult education, policing and security, as well as land development. Will those powers be held concurrently with the existing powers of the combined county authority or will they replace those powers?
Will the precept be an additional precept on the residents through council tax in those areas? Will there be a reduced precept for the powers now to be carried out by the mayor under this new role in that regard? Is the precept in addition to something that my noble friend Lady Penn informed me of on the Floor of the House: that there will be the possibility for combined county authorities to apply for grants? I presume that that will be for funding areas such as transport. Who will have the last say as to how, for example, transport funds will be spent?
I have to congratulate the Labour Party, because it now has a Labour mayor for York and North Yorkshire —which does not surprise me entirely, given that it is easier to get a vote out in an urban area such as York rather than a rural area that is very sparsely populated, such as North Yorkshire. Will the mayor or the combined authority have the last word on spending on transport, in particular, and on housing developments?
I ask that question because a long time ago I was a member of the Transport Select Committee in the other place and, as I understand it, North Yorkshire is unique in that, along with Lincolnshire, we have two of the largest networks of rural roads. They are used by people who do not live in North Yorkshire but are passengers and car drivers who transit through it. I am sure they have a lovely time using our roads, but obviously they do not necessarily contribute to the roads in that regard. With those few remarks, I welcome the regulations before us.
Baroness Taylor of Stevenage (Lab)
My Lords, as this is the first local government item on the agenda since the elections, I think it is right to congratulate all those who stood for election and took part in the democratic process at a local level. It just shows, again, that local government matters. My congratulations to the noble Baroness, Lady Pinnock, on her election.
Democracy was the winner on Thursday. There is no better illustration of that than the West Midlands election, which was won, in an electorate of some 3 million, by 1,500 votes. Apparently, there were 1,500 ballot boxes in that election, so, if there had been one extra vote in each of those ballot boxes, the result might have been different. That is a great illustration of why local democracy is important.
We have no intention of creating any unnecessary controversy over this straightforward SI, which extends the powers already granted to mayoral combined authorities to the more recently created combined county authorities. I am pleased to see that different geographic, social and economic issues that exist in the two-tier areas of the country are now being recognised and accommodated, and that this SI puts in place the financial mechanism to enable that.
As the Minister will be aware, during the passage of the then Levelling-up and Regeneration Bill, we had the opportunity to express our reservations regarding the governance arrangements for combined county authorities. It will take some testing of those new arrangements in practice to see whether the topics we were concerned about create any ongoing issues. For example, the lack of representation of district councils, which have the planning, housing and economic development powers, on combined county authorities has the potential to frustrate mayoral plans, if they are not used properly. I hope that enough thought will be given to the mayoral structures as they move forward to smooth this path; the noble Baroness, Lady McIntosh, referred to this issue.
That said, it is absolutely appropriate that all areas, including those with two-tier government, can benefit from the combined authority approach. How much flexibility will the Government allow to those authorities outside of urban areas to create county combined authorities that work for the geography, particularly the economic geography, of their areas? As an illustration, the inflexibility of Boundary Commission reviews can, on occasion, act as a blocker to structural arrangements that would facilitate the progress of developing economic areas. It would be a shame if people were stopped from doing that just because of an arbitrary boundary somewhere.
It would be wrong to consider any SI relating to local government finance without referring to the wider picture of the extreme financial pressures facing local government. I am sure that the Minister will have all those stats that get rolled out to us every time we mention this in the Chamber—they are the Government’s smoke and mirrors to make it look as though they are piling cash into our sector—but, of course, those on the front line know better. The increasing demand driven by costs in adult care, the increasing number of young people needing an urgent and comprehensive response to their special educational needs and the tsunami of homelessness as rents in the private sector soar ever upward, leading to mass evictions on affordability grounds—as well as the unfunded inflationary pressures across the board—are seeing councils struggle to make ends meet and, as we have seen on occasion, be unable to continue without intervention. Nothing in this SI will change any of that.
We all know that the bulk of the new funding for local government is coming from the pockets of hard-pressed council tax payers—another issue referred to by the noble Baronesses, Lady Pinnock and Lady McIntosh. The Local Government Association talks about figures
“based on the assumption that councils will raise their council tax by the maximum permitted without a referendum”,
leaving councils with tough choices about whether to increase council tax bills in order to bring in desperately needed funding at a time when they are acutely aware of the significant burden that this places on households in the middle of a cost of living crisis.
Can the Minister tell us the overall cost of the new mayoral combined authorities? The noble Baroness, Lady Pinnock, talked about individual levels of precept but do we have a figure for the overall cost for those combined authorities and county combined authorities? None of these new structures comes free. It will be interesting to see, over time, whether the economic growth that the new structures are intended to generate justifies the cost of setting them up.
The Minister spoke about transparency in combined authority and combined county authority finance, but we all know of the dysfunction there has already been in the local authority audit sector. Some 300 councils missed the deadline for audit at the end of 2022-23. Only three of them—1% of councils—were on time. Some 150 have not been audited since 2020-21; 61 have not been audited since 2019-20; 22 have not been audited since 2018-19; and 10 have not been audited since 2017-18. This is a really important reassurance for the public about how public money is spent. There is no better illustration of the importance of this than the issues that have arisen in Tees Valley.
The Government’s stated objective for setting up these new structures is to enable the levelling-up agenda. However, this year has seen the fifth one-year settlement in a row for councils, which continues to hamper financial planning and financial sustainability. Only with adequate long-term resources, certainty and freedoms can councils or combined authorities deliver world-class local services for our communities, tackle the climate emergency and level up all parts of the country. Can the Minister tell us what work the Government are doing to ensure that short-term funding settlements will not continue to hold back councils and combined authorities from achieving the ambitious aspirations that they have for their communities? Until those long-term funding arrangements are in place and designed to provide the stable, sustainable platform to deliver what is necessary, all this tinkering about is just moving deckchairs on the “Titanic”.
That said, we agree that there is a financial and democratic need for transparency in the funding of combined authorities; in granting equal powers to mayoral combined authorities and combined county authorities in this regard, this SI does the job it is intended to do. We will not oppose it but I am interested to hear the Minister’s answers to our questions.
Baroness Swinburne (Con)
I express my thanks to noble Lords for their contributions to the debate and for the number of points that have been made today. I will respond to as many of them as possible but I will have to respond to at least a couple of them in writing following this debate, given that they are very specific. In the time of this short intervention, there has not been time for everything to come from the Box—although a couple of answers have just come in, so I might be able to answer a couple more questions than I thought.
Let me begin by covering a few things. The noble Baroness, Lady McIntosh, asked about implementation. This SI is specific to the new combined county mayoral authorities rather than to combined authorities. In the immediate future, these new regulations will apply to the east Midlands, in particular; they will also then apply to all mayoral combined county authorities as they have been established in England. The Government’s devolution deal for the east Midlands has been in place since 30 August 2022, so this will be the first time it is used. Two further deals were announced alongside the 2023 Autumn Statement and, if implemented, will result in two further combined authorities: one for Lancashire and a mayoral one for Greater Lincolnshire.
This SI applies to them but, with regard to the noble Baroness’s broader comment about the way in which the spending works and how we generally feel the precepts are being set, we believe that the current method is working. Local authorities participating in it and the mayors who have been running it have told us that it is working. From that point of view, we have some confidence that this is the way to go and, therefore, should work. I will get back to the noble Baroness on grants, which is not in my folder; I suspect that it is covered by a different team to the one I have behind me. I will also come back to the noble Baroness on her specific transport inquiry.
With regards to the transparency of the mayoral component of the precept, it is already a requirement that that is broken out. It can be displayed as one number but it needs to be transparent somewhere as to what that number is. With the police and crime element of that, it is obvious how it is broken out. I will go back in my own time and check what is there, but we would certainly expect transparency to be something that every mayor would want, because it is in their interests to be honest with their electorate as to what they are paying for and how much it is.
Baroness Pinnock (LD)
Well, this is going to be interesting. The East Midlands will have eight constituent members with two from each authority, as I understand it, so neither two-thirds nor three-fifths works numerically. Do we take the bigger number or the smaller? Do we round up or down?
Baroness Swinburne (Con)
I am going to write to the noble Baroness with the exact number and calculation that will be used in the East Midlands situation. Ah—somebody knows the answer. It works out as two-thirds or more, so it would go up not down. There we go.
On the precept overall, the regulations provide for decision-making processes applying to those mayors who set a precept, a process which involves the constituent members who have the ability to challenge and, with a significant majority, amend the mayor’s plans for that precept. Where the mayor exercises police and crime functions, the referendum principle for the PCC component of the mayoral precept has been set at the same level as for PCCs. The Secretary of State has been clear that he will consider any increases set by mayors when determining referendum principles in future years, so there are measures that allow us to intervene if need be.
It is true that local audit is vital to support democratic accountability and in providing the assurances for local people that their elected representatives are doing what they should be doing with the budget that they have. The Government are working with the Financial Reporting Council and others in taking action to deal with the significant backlog of local audits in England and put the system on a sustainable footing. In February this year, system partners, including the Government, issued a joint statement setting out a package of measures to meet these challenges. During February and early March, DLUHC and the National Audit Office consulted on core elements of these proposals. We are reviewing that consultation response and will set out our intentions and respond in due course. It is an urgent matter and we are trying to get to grips with it. I am not taking it lightly; it really does need to be dealt with.
A number of other questions have been put but I think it will be of interest to Members to have proper, detailed answers, rather than what I am scrabbling together here. I will come back with written responses to those, but in the meantime I commend the instrument to the Committee.