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Devolution, local growth and borrowing

Money iStock 000008683901XSmall 146x219There have been suggestions that next week's Autumn Statement may deliver greater flexibility for combined authorities when it comes to borrowing. Judith Barnes looks at the benefits this would bring.

Successive governments have gone to great lengths to create a new strategic tier of local government with powers to exercise wide ranging functions over a number of administrative areas in England. Combined authorities were originally created to promote economic regeneration and transport; however, their functions were broadened with the enactment of the Cities and Local Government Devolution Act 2016.

The main aim of the 2016 Act is to promote local growth and offer the devolution of powers from central government and other public bodies to local authorities and combined authorities. So far we have seen very little in the way of devolution (with only a handful of combined authorities having agreed devolution deals with government), while many deals are on a knife edge as to whether they will proceed because of perceived "rowing back" on commitments given by Government in devo deals, governance reviews and schemes published for consultation. Far too much control was retained in secondary legislation under the 2016 Act when there should have been devolution of that control to the new combined authorities and their soon to be elected mayors.

Generally speaking there appears to be a lack of flexibility in Whitehall and a lack of trust in local authorities to run combined authorities. The approach appears to be that the Government will control everything that the combined authority does, rather than in the true spirit of devolution creating authorities with the powers to deliver functions and ensuring that they have the tools to do it. Two things illustrate this – the lack of borrowing powers without further regulation and a perceived unwillingness to change the footprint of the new combined authorities from that subject to consultation over the summer (despite willingness on behalf of prospective constituent authorities to do so).

One may have thought that the new powers granted in the 2016 Act, making it much easier to form combined authorities through an alternative shorter swifter process of a report made by the Secretary of State (under section 110 Local Democracy Economic Development and Construction Act 2009) would have swept away the review and scheme process, especially where the Government wishes to deliver the deals. Government, however, has been reluctant to proceed on a different basis and has insisted the old process is followed, even though, following consultation some authorities have now changed their view as to whether or not they would wish to be part of a combined authority. Under the 2016 Act the Secretary of State could revisit the combined authority geography and do a short consultation on an alternative form of combined authority with a different complement of constituent authorities, particularly where the results of consultation have raised alternative geographies and those authorities have now decided they wish to be included - but this new process does not appear to feature as a way forward for the Government.

Many local authorities and communities have swallowed the concept of an elected mayor against their desire not to have one as they see that as the best way to get on and promote local growth. At the same time, this central government control seems to be unwilling to cede the power given in the 2016 Act to allow the Secretary of State by Regulations to enable combined authorities to borrow.

At present, section 23(5) Local Government Act 2003 (as amended by the 2016 Act) provides that Part 1 of the Act (on capital finance) applies to a combined authority as it applies in relation to a local authority – except that the power to borrow in section 1 relates only to a combined authority's transport functions "or in relation to any other functions of the authority that are specified for the purposes of this sub-section in regulations made by the Secretary of State".

This was seen as a broad enabling power to borrow for the purposes of wider combined authority functions. Many of us expected that enabling regulations would be applied to all mayoral combined authorities allowing them to borrow for any of their functions in accordance with section 23(5) shortly after the Act came into force. However, this appears to be a sticking point in the preparation of draft orders for new combined authorities and for those existing combined authorities formed before the 2016 Act came into effect.

With devo deals in the order of £6bn on health and social care in Greater Manchester and 10 year deals around £1bn elsewhere, the potential for local growth will be severely hampered in the event that the government does not properly provide borrowing powers for these combined authorities to leverage the grant money and revolving funds provided, as well as borrow to fund working capital and set up costs pending receipt and distribution under local levies. What is the reluctance of central government to give borrowing powers, hampering the ultimate goal to promote and stimulate growth effectively? It is hard to think of any other public body that does not have the power to borrow for the purposes of its functions. This lack of a general enabling regulation is even more mystifying when arguably the most important function of a combined authority is economic regeneration coupled with wider public functions to stimulate local growth.

It seems to work against the concept of a strong local leader in the shape of an elected mayor of a combined authority and certainly against the principles of localism when local leaders could do so much more if empowered by the Secretary of State through regulations.

The cynics may believe that this is yet another attempt to diminish the impact of combined authorities and make them less attractive so that the government spends less and has fewer combined authority and growth deals to promote, at a time when other important things are on the agenda, such as Brexit.

The controls on borrowing are already in place. The combined authority must appoint an officer to have responsibility for the proper administration of its financial affairs.The officer also has a duty to report in the event that it appears that the authority's books may not balance and the finances must be managed in accordance with the prudential regime. What more does the government want by way of assurance before it allows combined authorities to have meaningful borrowing powers?

Judith Barnes is a Partner at Bevan Brittan LLP. She can be contacted on 0370 194 5477 or This email address is being protected from spambots. You need JavaScript enabled to view it..

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