Economic Affairs Committee
Tuesday 8th September 2026
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15:06
Lord Liddle
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Lord Liddle
Welcome to this meeting of the Economic Affairs Committee, where we have some distinguished guests from local government who we hope are going to illuminate the problems of fiscal devolution, which is the subject of our inquiry. And could I briefly ask you simply to introduce yourselves to our audience, and then I'll ask the first question.
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Speaker 1
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Speaker 1
Firstly, thank you very much for inviting us. It's an important topic, you know, timely one as well. I think this is central to the case for fiscal devolution, that it can unlock not just economic growth, but good economic growth, inclusive economic growth, however you want to describe it, because it puts local councils and strategic authorities in a position to more adequately address local needs, deliver on local priorities and exploit local opportunities. And I would say from my experience in Greater Manchester, I don't think it's a coincidence that the area with the most progressed and sort of the strongest devolution arrangements is also now the fastest growing, both in terms of GDP per head and also productivity.
So I think there's a growing body of evidence to support this. And there's a piece of work by the OECD done about ten years ago now, which provides a sort of more theoretical benefit sort of argument in favour of this. But the reason why I think it will unlock economic growth and more economic growth is that it is a possible solution to a range of other issues facing local government, the first of which is clearly the financial challenge and difficulties facing many, many councils.
You know, we are in a position where money is tight and that is taking capacity and focus away from potential opportunities to deliver more economic growth and is effectively forcing the conversation and all of the time and energy and a lot of the capacity around managing demand led complex services like social care and housing. So if fiscal devolution can be an answer to those wider problems, which I'm sure we can develop our arguments further in this discussion, it will open up far more avenues to deliver projects to deliver economic growth.
And, as I say, good economic growth that looks at people's skills and education, health and wellbeing, housing, transport and a whole host of other areas. So we're confident from both theory and practice that we can stand behind fiscal devolution as a means to economic growth. And crucially, I think it has answers to other problems as well. Oh.
So I think there's a growing body of evidence to support this. And there's a piece of work by the OECD done about ten years ago now, which provides a sort of more theoretical benefit sort of argument in favour of this. But the reason why I think it will unlock economic growth and more economic growth is that it is a possible solution to a range of other issues facing local government, the first of which is clearly the financial challenge and difficulties facing many, many councils.
You know, we are in a position where money is tight and that is taking capacity and focus away from potential opportunities to deliver more economic growth and is effectively forcing the conversation and all of the time and energy and a lot of the capacity around managing demand led complex services like social care and housing. So if fiscal devolution can be an answer to those wider problems, which I'm sure we can develop our arguments further in this discussion, it will open up far more avenues to deliver projects to deliver economic growth.
And, as I say, good economic growth that looks at people's skills and education, health and wellbeing, housing, transport and a whole host of other areas. So we're confident from both theory and practice that we can stand behind fiscal devolution as a means to economic growth. And crucially, I think it has answers to other problems as well. Oh.
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Speaker 2
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Speaker 2
Thank you. I agree with most of what Eamon, if not all of what Eamon has just said. I think there's really strong evidence. My area is another area where we have a mayoral combined authority. We're one of relatively few areas, rural areas which have a mayoral combined authority. Our mayoral combined authority is not in as advanced state and in fact has had significant problems on the way. But even in our area, there is really clear evidence of how devolution is driving growth, and it's driving growth in kind of complicated and but, but but interesting ways, one of which in our area is to do with public transport and bus services.
And I'm happy to talk about that at length later, if anyone wants me to. I think there's a really important message from the county councils network, which I heavily endorse, that devolution needs to be delivering for rural England as much as it is for city regions, and at the moment, rural England is getting left behind in the devolution race, as it were. I think that's a real problem, and I think fiscal devolution needs to think about how it's going to work for widely different areas across the country.
Rural England, that is, is about half of England's population and almost half of England's businesses. It's not quite half of England's GVA, but but it's if we're not delivering growth in rural England, the rest of England will not be growing as fast as it could be. So thinking about how this fiscal devolution works in rural areas as well, I think is critically important in this conversation. Thank you.
And I'm happy to talk about that at length later, if anyone wants me to. I think there's a really important message from the county councils network, which I heavily endorse, that devolution needs to be delivering for rural England as much as it is for city regions, and at the moment, rural England is getting left behind in the devolution race, as it were. I think that's a real problem, and I think fiscal devolution needs to think about how it's going to work for widely different areas across the country.
Rural England, that is, is about half of England's population and almost half of England's businesses. It's not quite half of England's GVA, but but it's if we're not delivering growth in rural England, the rest of England will not be growing as fast as it could be. So thinking about how this fiscal devolution works in rural areas as well, I think is critically important in this conversation. Thank you.
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Speaker 1
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Speaker 1
That would mean more decentralisation than devolution. And I think the journey up until now has simply said, we're going to raise it nationally and we're going to give you a chunk of that money. And here are the ten conditions and areas that you have to spend it on. By and large, being one of decentralisation rather than genuine devolution.
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Lord Burns
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Lord Burns
Thank you very much. Could we look at the the question of which taxes should be devolved or assigned? And my question is, you know, what guiding principles should be applied when deciding which of those should be. I mean, you mentioned business rates earlier, but you have a set of principles. So any idea of what are the issues that would make one approach more successful than another? You know, either in terms of particular taxes or in terms of some of the charges that you have.
You have mentioned.
You have mentioned.
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Speaker 1
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Speaker 1
I could begin on that. So I mentioned earlier, we we've done a piece of work back in 2022, which if colleagues haven't had a chance to have a look at, be happy to make sure that it gets shared. It set a series of principles of which you could analyze a variety of potential revenue streams. The principles began with sufficiency. So does it address that point that I started with? Does this help us get to a point? But you are alluding to earlier, Lord young, that, you know, just moving money, paying for it in a different way is not dealing with that issue of sufficiency.
The second is buoyancy. So this ability, you know, going up and down, there's a risk associated with having greater fiscal devolution. If money can go up, it can also go down potentially. So there's a question mark about protecting against that dynamic, especially when our demand certainly isn't going down. Fairness, efficiency, predictability, transparency and incentives with the other principles . And what this paper has outlined against all of those principles is what we would argue theoretically meets those highest of that highest up there was was the devolution of income tax and also an e-commerce levy.
And the paper set out, you know what, theoretically that could raise how that could potentially be distributed. And, and, and it sort of balanced that against areas that we didn't think were as appropriate for fiscal devolution. So there is a body of work there, which, as I say, we've stopped short of saying, therefore, the Lga's position is the government must do X, Y or Z. But it does set out a pretty detailed argument across a range of those different options.
As I say, the devolution of income tax or an e-commerce levy were the two top ones that came out of that process.
The second is buoyancy. So this ability, you know, going up and down, there's a risk associated with having greater fiscal devolution. If money can go up, it can also go down potentially. So there's a question mark about protecting against that dynamic, especially when our demand certainly isn't going down. Fairness, efficiency, predictability, transparency and incentives with the other principles . And what this paper has outlined against all of those principles is what we would argue theoretically meets those highest of that highest up there was was the devolution of income tax and also an e-commerce levy.
And the paper set out, you know what, theoretically that could raise how that could potentially be distributed. And, and, and it sort of balanced that against areas that we didn't think were as appropriate for fiscal devolution. So there is a body of work there, which, as I say, we've stopped short of saying, therefore, the Lga's position is the government must do X, Y or Z. But it does set out a pretty detailed argument across a range of those different options.
As I say, the devolution of income tax or an e-commerce levy were the two top ones that came out of that process.
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Speaker 2
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Speaker 2
I think the CCN position is, is that it's quite important to recognise that areas are very different and that what works in one area may may be not appropriate in another area, and therefore looking at a range of different options for fiscal devolution so that areas get some choice over the bits that they have might be helpful. Clearly, if you if you're in a high growth, high business growth area, as I am, then retention of business rates is really helpful because we've got high growth area anyway, other areas, the tourism levy might be really helpful for them, but there are going to be parts of the country which for which neither of those are particularly useful or might be even detrimental.
So having a range of different options, I think will be really important in how you look at this. Just to go back to the previous question slightly, that there is also the business about people being wanting to see how their taxes make a difference, regardless of which tax it is, how their taxes make a difference to their local area. And even if all you're doing is passporting income tax, at least if some people can see how some of that income tax is being spent in their local area, and that's visible and accountable locally, you may get some slightly different outcomes from what you would have had otherwise.
So having a range of different options, I think will be really important in how you look at this. Just to go back to the previous question slightly, that there is also the business about people being wanting to see how their taxes make a difference, regardless of which tax it is, how their taxes make a difference to their local area. And even if all you're doing is passporting income tax, at least if some people can see how some of that income tax is being spent in their local area, and that's visible and accountable locally, you may get some slightly different outcomes from what you would have had otherwise.
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Lord Butler of Brockwell
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Lord Butler of Brockwell
Just to add sort of financial stability requires diversified revenue streams in local government. We have very little revenue streams. So we've got four stroke, five council tax business rates, fees and charges, and limited grant funding. We did have commercial income. Commercial income has changed really in the approach we can take. But where the LCMs position is where where costs are local, revenue should be local. It's a good example.
And we talk about tourism in Oxford, for example, they have massive amounts of tourism, which is fantastic, but also has a cost as well. For a population of 160,000, 7 million visitors to to the town, to the city is fantastic, but obviously has an impact on public realm and impact on on open spaces, street cleansing, environmental impacts. And just looking at a test with regard to Oxford, they were looking if they put £2 a visitor in, it would help them achieve 2.5 million of income.
But at the present time, they can't do that without the local powers to do that. So again, they're a bit handcuffed around to those income streams they could achieve. But probably the visitors who visited Oxford would be very happy to pay £2 as a visitor levy to come into Oxford.
And we talk about tourism in Oxford, for example, they have massive amounts of tourism, which is fantastic, but also has a cost as well. For a population of 160,000, 7 million visitors to to the town, to the city is fantastic, but obviously has an impact on public realm and impact on on open spaces, street cleansing, environmental impacts. And just looking at a test with regard to Oxford, they were looking if they put £2 a visitor in, it would help them achieve 2.5 million of income.
But at the present time, they can't do that without the local powers to do that. So again, they're a bit handcuffed around to those income streams they could achieve. But probably the visitors who visited Oxford would be very happy to pay £2 as a visitor levy to come into Oxford.
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Lord Burns
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Lord Burns
If I go back to my first category about whether this was high taxes or it was re-allocating spending, I mean, of the things that you've mentioned are the e-commerce levy, the visitor levy , keeping all business rates are all cases of more taxes. The only one that is a what I would describe as devolution of existing taxes is, of course, the income tax one. But you are happy to sell this on the basis that because they are called charges or they are called levies, it.
Somehow or other But somehow or other . This
Somehow or other But somehow or other . This
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Baroness Penn
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Baroness Penn
in under the heading of taxes. I'm not is a lot of the focus we've had so far from this new administration. Types of government as outlined in the English. Devolution Act and I is on the strategic. authorities and and mayors. Is the government right to place its focus there versus local. authorities going beyond just the planning question to to . The whole
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Speaker 2
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Speaker 2
Is that the really important thing that a strategic authority can do is try and build local. consensus and a and a kind of shared vision across the place. And if you get that shared vision, that's when you get a real driver of growth, a real sense that everybody's working in the same direction. You don't what we had in our, when we , when we have been being. dysfunctional is one, one direction set by one mayor.
Then you get another mayor come in and they completely change the direction and they waste an enormous amount of time and money on mayor number one, commissioning X reports, which then get put in the bin. And then are the two commissions another set of reports. So the really, really the crucial thing about it's not it's it's about making sure that everybody is. incentivised to work together. And that nobody has that. You don't end up with a system where it's very easy for people to veto other people's ideas or go off in a direction where they don't have the support of the broader area.
So when you're thinking about the structures, it's not the most important thing is that the. structures support each other to build.
Then you get another mayor come in and they completely change the direction and they waste an enormous amount of time and money on mayor number one, commissioning X reports, which then get put in the bin. And then are the two commissions another set of reports. So the really, really the crucial thing about it's not it's it's about making sure that everybody is. incentivised to work together. And that nobody has that. You don't end up with a system where it's very easy for people to veto other people's ideas or go off in a direction where they don't have the support of the broader area.
So when you're thinking about the structures, it's not the most important thing is that the. structures support each other to build.
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Speaker 2
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Speaker 2
structure for building consensus across those areas? I don't think it's clear. And the reason that I think it's not very clear is because it's not absolutely clear to me how much it comes back to this question about when the when the government is talking about mayors, are they talking about individuals or strategic authorities? Because if they're talking about strategic.
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Speaker 2
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Speaker 2
And they can't do things on their own. But, but a lot of the. The way it's. expressed is that it's about an individual. And an. individual isn't helpful in terms of. And putting all that emphasis on an individual is not helpful in terms of building that consensus. And that has. And in order to be. If you're going to get growth, you have to have long term.
visions that are going to survive more . Than
visions that are going to survive more . Than
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Speaker 1
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Speaker 1
Between local. authorities and strategic authorities. But I think you could easily. compare the setup and the way in which we work in a place like Greater Manchester. It'd be true for other places compared to, say, London, where there is not quite the same relationship between the mayor and the mayor's powers and the mayor's role and the 30 odd authorities across across.
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Speaker 1
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Speaker 1
But he was the sort of he was the person who brought us together around those objectives. And by and large, that worked. I think in the time of the combined authority in Manchester, we've only officially had two votes at combined authority meetings. One of those was on the position on Brexit and the other one was on bus franchising. By and large, it has forged consensus across different political parties and different political leaders. So when it.
works and when it's founded on mutual respect and a sense of mutual ism, then actually it works very well and it can work very well in those.
works and when it's founded on mutual respect and a sense of mutual ism, then actually it works very well and it can work very well in those.
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Speaker 3
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Speaker 3
And I think that's a risk. I don't think it's an inevitability. And the only point to add there is to make sure that's complementary. With the strategic authorities and the local council. It needs to be it needs to be a partnership moving forward. Devolution doesn't stop at that. Strategic authority has to go down. But that relationship is key to that to make that work. And it might look different in different parts of the country, the functions and services.
And because some of those discussions will happen and they'll be the right, fit . And
And because some of those discussions will happen and they'll be the right, fit . And
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Lord Carrington of Fulham
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Lord Carrington of Fulham
that place. Lord Carrington. Yes. Thank you. I'm just following up on that, because the question of the power between the mayor or the mayoral authority and the local councils is largely going to come down to money, isn't it? And if the devolution, if if there is serious money devolved to the regions, to the mayors, is what they say. So we assume it's to the mayor personally in his elected capacity, he's going to have the money to be able to decide what goes to the local authorities that form his advisory council around him.
And the advisory .
And the advisory .
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Speaker 1
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Speaker 1
Council has no statutory power to be able to control the matter. You can't just, you know, click your fingers and get people into social care or click your fingers and get people into sort of the highest positions in planning authorities. It's going to take it's going to have to be a really concerted effort to do. But I look at the opportunities within that. I look at that as great opportunities for a new generation of people to come into.
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Speaker 2
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Speaker 2
When we are recruiting for people, we get really high calibre applicants because it's seen as an exciting place to work and lots and lots of people really want to work in their local place. They are kind of they want their local place to be successful. They want it to achieve. On the other hand, trying to recruit into Cambridgeshire County Council with LGR hanging over us is not easy at all because because it's very difficult for people to know what the long term future of that council is even more difficult after yesterday.
So I mean, the uncertainty is really hard. But but if you provide certainty and you provide . A
So I mean, the uncertainty is really hard. But but if you provide certainty and you provide . A
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Lord Butler of Brockwell
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Lord Butler of Brockwell
Yeah. Paul Butler has a point he'd like to put to you. I just want to return to the question of building a framework as a basis for devolution. Now, having heard your evidence today, I think you three are absolutely ideal to do that. What I want to ask is, do you feel you're being properly consulted? And if this committee was going to. recommend a. framework for, you know, a.
mechanism for building the.
mechanism for building the.
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Speaker 2
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Speaker 2
What should it be? Yeah. Well, I think in the in the do we think we're being properly consulted? Probably not. Actually, I don't I mean, I think it very much has felt as if devolution is being done to local. government and, and has been a very top down process, not very collaborative at all in terms of how that framework ought to look. I think that Ken and the district councils network.
LCN, Local Councils network and the LGA would be. absolutely keen to be involved in kind of looking at what a framework ought to look like and how it can be more collaborative. As you will have noticed, many of us think about it quite a lot. So. So I think there would be enormous willingness to collaborate in what that framework should look like. Probably the sensible thing to do would be to build on what's happened and look at what's been successful already in terms of a sort of steps of steps towards Manchester or London, rather than saying that everywhere needs to start from .
There
LCN, Local Councils network and the LGA would be. absolutely keen to be involved in kind of looking at what a framework ought to look like and how it can be more collaborative. As you will have noticed, many of us think about it quite a lot. So. So I think there would be enormous willingness to collaborate in what that framework should look like. Probably the sensible thing to do would be to build on what's happened and look at what's been successful already in terms of a sort of steps of steps towards Manchester or London, rather than saying that everywhere needs to start from .
There
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Baroness Wolf of Dulwich
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Baroness Wolf of Dulwich
You need to build the capacity and it takes time. I'm sorry. It's a similar point really, in terms of how we might want to frame what we say, because you started off by pointing out that one of the things that you're facing at the moment is a legal. obligation to provide services that you simply do not have the resources to provide. And I think it's really picking up on, on Baroness Wheatcroft point that if we're going to start down a road of of greater.
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Speaker 3
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Speaker 3
way? Is it those two key things? I mean, it does I've worked across unitary councils, district and borough councils, and when I've been in a unitary council, the the challenge is adults and children and services is the priority and balance the budget. So some of the placemaking opportunities, nine times out of ten are the things that are taken off the table. So some of those things that we really do as a place to stimulate growth is really challenging because they sometimes come off the list because it's a child in care or an adult, a vulnerable adult that has to come first.
And that's a real burden. So it's, it's part of our role in the public sector, but it doesn't mean some of those other things that we help to stimulate local growth, that help to help with GDP, government level get taken off the table. So we're really limited that. So so yeah, those I started in local government in some of those areas where 50, 50% was adults and children, now it's. 8,090% in some of those councils. So you've left about 10% to do that place work or be very creative with financial opportunities to look at investment and others.
But again, you can be creative. But with some of those parameters I talked about .
And that's a real burden. So it's, it's part of our role in the public sector, but it doesn't mean some of those other things that we help to stimulate local growth, that help to help with GDP, government level get taken off the table. So we're really limited that. So so yeah, those I started in local government in some of those areas where 50, 50% was adults and children, now it's. 8,090% in some of those councils. So you've left about 10% to do that place work or be very creative with financial opportunities to look at investment and others.
But again, you can be creative. But with some of those parameters I talked about .
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Speaker 1
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Speaker 1
Difficult to sort of move some of those things on, I think, sorry, I, I think there'll be a lot of debate about this in the KC review, for instance, around adult social care, but I actually remain of the. opinion that there is a lot in which local. authorities should be doing around adult social care, which. currently we are not able to do, and the cost of that has been picked up elsewhere in the system, for instance, in the NHS.
So I think you could, yes, potentially you could take it all out and you could create a National Care service, and it could maybe even be sort of merged in with the NHS. And you'd have.
So I think you could, yes, potentially you could take it all out and you could create a National Care service, and it could maybe even be sort of merged in with the NHS. And you'd have.
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