1) FAQ: What Act of Parliament Allows Combined Authorities to Be Established?

Briefing Note October 2015 - Ten Frequently Asked Questions (FAQs)
Combined Authorities, Devolution Deals, Metro Mayors and West Midlands Combined Authority (WMCA)

Introduction
The West Midlands Combined Authority is due to be established in April 2016. The Combined Authority is the form by which local authorities can act together to deliver their economic and transport objectives, amongst others, and coordinate these functions to deliver them. It is a means of developing the collective governance structures required to manage the proposed devolution deals with government enabling the regional and local management of funds previously collected and spent by Central government.

McKinsey have highlighted that central government’s share of decision-making on public spend accounts for 72% in the UK, compared with 35% in ‘centralised’ France and 19% in Germany. City regions are looking to develop flexibility to tailor solutions to meet their specific needs rather than have a one size fits all approach ‘foisted’ on them, especially when it comes to priority competitive and quality of life issues such as skills, infrastructure, housing and healthcare. Following the 2008 financial crash the urgent need to rebalance the UK economy remains with economists, such as David Smith, estimating the London and South East generate as much as 40% of UK GDP, with the prevailing view that services and the knowledge economy remain the key sources of economic growth and opportunity. IDEA Birmingham has in previous work highlighted the importance of the manufacturing economy to the Midlands and some of the competitive priorities required across the Midlands Engine if we are to continue delivering further economic rebalancing and sustainable growth.

The question for the West Midlands business community is whether the formation of the WMCA can be used to enable greater focus on collective responsibility for value and wealth creation and the partnership that is required to foster and longer term proactive approach to delivery.

The following Position Briefing Note seeks to answer some commonly asked questions regarding the Combined Authorities being established in England in response to some of these challenges and in particular with reference to the West Midlands Combined Authority. It is not definitive and a follow up note will be produced before end 2015, following the Autumn Statement, incorporating greater reference to our proposals for a Fiscal Commission, to the emerging WMCA Super Strategic Economic Plan and productivity agenda and the role of City Deals and Enterprise Zones within the WMCA area.

1) FAQ: What Act of Parliament allows Combined Authorities to be established?

A Combined Authority may be established under the Local Democracy, Economic Development and Construction Act 2009. They can be set up by two or more local authorities in England following a governance review and may include transport and economic development or other functions as agreed by constituent authorities.

The legislation establishes the framework for Local Authority Leaders’ Boards, responsible for Combined Authority functioning. Each council appoints one councillor to the leaders’ board, with some Combined Authorities enabling the appointment of LEP members as well as additional members to provide political balance. Establishing Orders permit the transfer of powers for integrated transport, passenger transport executive, economic prosperity or economic development to the combined authority.

Regarding the establishment of the West Midlands Combined Authority (WMCA), an affirmative order for the WMCA has been laid in Parliament which will formally enact the constitution for the WMCA.The Localism Act 2011 provides a general power of competence to carry out its functions.

To-date six combined authorities have been established in the English regions outside London with the West Midlands Combined Authority (WMCA) due to be set up in April 2016.

The 2009 Act above is due to be amended by the Cities and Local Government Devolution Bill 2015-16 which will allow for greater devolution alongside the establishment of a directly-elected mayor.

The Greater Manchester Combined Authority, the first to be set up in England, was established in 2011. Five more Combined Authorities were set up through 2014-2015 in the North East, West Yorkshire, Sheffield, Cornwall and Liverpool. The Combined authorities of Greater Manchester, Sheffield and West Yorkshire were offered additional powers via devolution deals in late 2014 and early 2015.

2) FAQ: What Act of Parliament enables a City region Mayor to be established without a referendum?

It will be possible to have a City Region Mayors established without a referendum under powers proposed within The Cities and Local Government Devolution Bill 2015-16. The government anticipates the first elections to take place May 2017.

Delivering a Metro Mayor is seen as essential to the deal by the partners to the WMCA, with the suggestion that this comes with accompanying further devolution of autonomous financial capacity.

3) FAQ: Devolution deals are empowered through which Act of Parliament?

The second reading of The Cities and Local Government Devolution Bill 2015-16 was due to be heard in the House of Commons, 14th October 2015, having already passed through House of Lords. Once passed into law this Act will give statutory foundation to various aspects of Devolution deals. Deals were proposed to the Treasury for 4th September in order for them to be taken into account for Autumn Spending Review with the WMCA team having been in discussion with the Treasury to meet this deadline and since then.

George Osborne speaking about this 2015 Queen's Speech said:

"We will hand power from the centre to cities to give you greater control over your local transport, housing, skills and healthcare. And we'll give you the levers you need to grow your economy and make sure local people keep the rewards.

"But it's right people have a single point of accountability: someone they elect, who takes the decisions and carries the can.

"So with these new powers for cities must come new city-wide elected mayors who work with local councils."

In the Spending Review government will look at transforming the approach to local government financing and further decentralisation to ‘maximise efficiency, local economic growth and integration of public services’.

The Devolution deal is separate to the Combined Authority deal and runs parallel to it. Partners can be involved within the Devo deal but not be partners to the CA deal. Devolution deals should deliver additional funding for the West Midlands Combined Authority geography and partners, it is stated. For example through the Business Rate Uplift anticipated the Enterprise Zone around the Curzon Urban Regeneration Scheme (CURS) is seen as being able to potentially deliver an amount projected to be more than three times that currently anticipated with ongoing negotiations intended to agree Enterprise Zone extensions from 25 to 35 year durations.

4) FAQ: Who are constituent and non-constituent members within a Combined Authority?

Combined Authorities have no directly elected members. The 2009 Act provides that constituent members of CAs can include Metropolitan Authorities with unitary control over their areas – with City and Metropolitan Borough Councils forming the basis of the WMCA.

Combined Authorities cannot include a District Council area without consent of the relevant County Council. However District Authorities can become ‘associate members’ or non-constituent members of a CA. Local authorities cannot be members of more than one CA. Associate members may not have voting rights. Amendments to the Cities and Local Government Devolution Bill are anticipated to deal with non-contiguous boundaries and issues arising from this.

West Midlands Combined Authority (WMCA) constituent parties: Metropolitan Borough Councils - Dudley, Sandwell, Walsall and Solihull City Councils - Wolverhampton, Birmingham and Coventry Non constituent LEP members: Black Country, Greater Birmingham and Solihull and Coventry and Warwickshire Local Enterprise Partnerships

Non-constituent District Council members (currently part of GBSLEP): Bromsgrove, East Staffordshire, Lichfield and Tamworth, Cannock Chase, Redditch and Wyre Forrest, with up to 20 local authorities in total anticipated within the WMCA area

County Councils excluded from WMCA arrangement: Warwickshire, Shropshire, Worcestershire and Herefordshire.

LEPS excluded from WMCA: The Marches (Shropshire and Herefordshire); Worcestershire

IDEA CommentarySir Albert Bore, whilst leader, Birmingham City Council, noted in public meetings that County Councils outside of the WMCA arrangement may aim to pursue unitary council status to enable the development of greater cohesion.

5) FAQ: Who is on the WMCA Shadow Leaders’ Board?

Members of the WMCA Shadow Leaders’ Board:

Chair: Cllr Bob Sleigh, Leader, Solilhull Metropolitan Borough Council (MBC), Conservative

Deputy Chair: Cllr Darren Cooper, Leader, Sandwell MBC, Labour

Members: Cllr Sir Albert Bore, Leader (to December 2015) Birmingham City Council, LabourCllr Ann Lucas, OBE, Leader, Coventry City Council, Labour

Cllr Peter Lowe, Leader, Dudley MBC, LabourCllr Mike Bird, Leader, Walsall MBC, ConservativeCllr Roger Lawrence, Leader, Wolverhampton City Council, Labour

IDEA CommentaryNon Consituent members of the WMCA include the three Local Enterprise Partnership Chairs – Stewart Towe, Black Country, Andy Street, Greater Birmingham and Solihull and Jonathan Browning, Coventry & Warwickshire, however they do not have equality in terms of voting rights, should decisions come to a vote, although their views will be taken into account.

Comments made on the record at recent meetings include the suggestion that the three LEPs above, whose borders are contiguous with the WMCA area, may cease to exist after the next 12-18 months, suggesting that economic development role of the LEPs could be subsumed either within one Super LEP or within the WMCA itself following this period.
Whilst LEPs have taken some time to establish themselves, the business community needs to consider how best to ensure representation for the wealth creation viewpoint within the WMCA should this be the case and how the productivity agenda, seen as central to the WMCA should be developed.

6) FAQ: What are the Fiscal Powers of CAs and WMCA?

General Fiscal Powers and Proposals for Local Authorities

House of Commons Briefing Note 07046, 15 May 2015, explains that Local authorities receive a proportion of their funding in the form of a central government grant. The majority of this is allocated annually by the Department for Communities and Local Government (DCLG) with some programmes administered by other departments. Most of the DCLG grant can be spent as local authorities see fit although a small number of items are ring-fenced.

Central Government Funding

Currently central government revenue and capital grant funding is fixed on an annual basis in the Government’s Finance Report.

In recent years indicative funding levels for a second year have been provided by the Government.

There have been a number of proposals for local authorities to have additional flexibility over budgets and for a reduction in central government’s role in the grant-making process.

1) Single Budgets – growing out of concepts and pilots such as Our Place, Total Place and place-shaping noted in the 2007 Lyons Inquiry, this could mean the removal of the remaining ring-fences for education, police funding as well as the option of combining funding streams into single budgets, for example in health, skills, employment support where budgets are held by a number of organisations other than local authorities.

2) Terms such as ‘pooled budgets’ or ‘aligned spending’ are used to describe organisations working together voluntarily whilst retaining existing accountabilities

3) Multi-year budgeting – provision of five year revenue budget – length of a parliament for local authorities which would give greater financial certainty to local authorities and allow them to move funds between years to facilitate forward planning with a similar suggestion being made for a five year capital spending budget

4) Independent grants commission responsible for overall allocation of local government funding amongst local authorities having capacity to decide on criteria for allocation of funds

5) Fiscal management body with a possible role in local authority borrowing, financial audit and property revaluation building on Local Government Associations work to set up a collective bonds agency to lend to local authorities; future role in bulk procurement of audit and part of role of the Valuation Office Agency.

Borrowing

The purpose of increasing local authority borrowing powers is to allow authorities to invest in infrastructure. Local authorities cannot borrow to meet revenue spending requirements. The majority of proposals of this kind relate to house building, though the same principles could apply to other forms of infrastructure too.

Currently local authorities may borrow from a range of sources under the terms of the Prudential Code. Changes proposed include:

1) Removal of the Housing Revenue Account (HRA) Cap.

Local authorities must keep their housing-related income in a separate account (the Housing revenue account). They can borrow against this income stream, however there is an additional national ‘cap’ on borrowing for housing investment against local authorities’ Housing Revenue Account funds, which sets a tighter limit than would apply in the Prudential Code was applied to council’ Housing revenue accounts. Removing this would release an extra £4.2-7bn of borrowing capacity across England as a whole which could be used to increase housing supply

2) Retaining the cap but allowing transfers of borrowing capacity between local authorities. This would allow local authorities to transfer any ‘headroom’ to one another, this would increase flexibility whilst retaining the overall limit on total debt

3) Local authority borrowing for housing to be excluded from measures of public debt. The HRA cap owes its existence to Treasury concerns on its effect on public sector borrowing.

Tax Increment FinancingTax Increment Financing (TIF) schemes enable local authorities to borrow to invest in infrastructure and repay the loan from increased tax revenues resulting from the investment.

The existing TIF schemes are known as New Development Deals – local authorities have to apply to borrow money in this way and the only tax revenues which local authorities can use to repay TIF loans are those from business rates. A cap of £150m is set on the total amount that can be borrowed under TIF.

For example, new financial powers have been granted to allow Greater Manchester to “earn back” up to £1.2 billion from economic growth generated through up-front investment in infrastructure, the basis of a 30 year revenue stream incentivising Greater Manchester to make the long-term investments to generate the maximum amount of net additional economic impact.

Proposal for TIF funding schemes include

· The removal of the cap on TIFs

· The use of TIF based on impact of the investments made on the wider tax base - leading to either additional tax raising powers by local authorities for additional revenues allocated to local authorities which increase their tax receipts via agreed indicators.

Earn Back Schemes

Two types of agreement are included at present.

A local authority is given a sum of money in respect of a particular policy for a fixed number of years and is then permitted to spend the funds as it sees fit with the capacity to retain any funds saved in the process. Alternatively it refers to the TIFs or New Development Deals outlined above.

Some proposals have been made to extend the first option above.

i) Develop an ‘earn back framework’ relating to housing benefit where local authorities retain any savings below agreed levels set over three year fixed periods

ii) Local authorities benefit from successful employment of skills interventions leading to higher employment and benefits savings resulting

iii) Devolution of all budgets for housing benefit and housing capital finance to local authorities providing them with discretion to fix the balance of spend between the two with any savings being retained

iv) Enabling Combined authorities to invest in infrastructure based on potential savings from increased employment and the potential proceeds from increases in GVA implying a link between local authority income and spending on out-of-work benefits in their area