Oral evidence: Fiscal devolution to cities and city regions, HC 1018Monday 3 February 2014
Oral evidence, 3 February 2014.
Witnesses
Councillor Peter Box, Chair, Key Cities Group, Ed Cox, Director, IPPR North, and Liz Peace, Chief Executive, British Property Federation.
Chair
Welcome to our second panel this afternoon. Thank you very much for coming. For the sake of our records, at the beginning could you say who you are and the organisation you represent? Just go down the table, thank you.
Cllr Box
Peter Box, Leader of Wakefield Council. I represent the Key Cities Group on devolution.
Ed Cox
I am Ed Cox. I am Director of IPPR North, the Institute for Public Policy Research in the North of England
Liz Peace
I am Liz Peace. I am Chief Executive of the British Property Federation. We represent primarily the commercial property industry, though we do have a number of residential members as well.
Chair
I will begin with one of the questions I put to the witnesses earlier. If devolution is something that every single part of the country says they want and they want it now, are we in danger of actually stopping anything from happening at all? The Treasury will just take one look, take flight and that will be the end of it.
Ed Cox
My view is that we should not let the best become the enemy of the good. We need to be inventive and visionary about the kind of devolutionary settlement we want in England. That starts with you as parliamentarians having something of a vision for what decentralisation needs to look like. We then need to be programmatic about it rather than piecemeal, as we have been historically. If you have a vision and if we can set out a programme that will work in different places, in different areas and in slightly different ways—I am happy to talk some more about what that might look like—there is a way in which we can, as a nation, not let the best become the enemy of the good.
Cllr Box
I would agree with what Ed says. The fact that there will be differences across the country in terms of the cities and in terms of some of the more rural areas, perhaps through county arrangements, should not stop us from going ahead. If you look at what has been happening in the country over the last few years with devolution for Scotland and Wales, it has not been the same across the piece. There is a great appetite right across local government for greater devolution and for us to be able to do things in a different and more cost‑effective way.
Chair
Before I come onto Liz, as I asked the previous witnesses, if in the end the Treasury was so moved to say, “We are persuaded of the case and we are going to allow the London Finance Commission packages to go ahead for London and the Core Cities, but that is as far as we would be prepared to go,” without any commitment to go further at this stage, what would your reaction be? Would you say, “Okay, that is at least some movement” or, “We are against it until we can have it as well”?
Cllr Box
Those who know me will know the answer is no. We would not accept that.
Chair
You would say, “We do not want anything, if we cannot have it as well.”
Cllr Box
I would say, “We will not accept that.” It is not acceptable to say that it would happen in certain areas and not the rest. It is just not acceptable. The genie is out of the bottle in terms of devolution; you cannot put it back in. If that were to be the case, there would continue to be this pressure for greater devolution from the key cities. We are not in competition with the Core Cities, but to say only the Core Cities would get it would seem, to us, to be perverse.
Ed Cox
What interests me about the question is the premise that Treasury is somehow some kind of divine authority outwith the control of parliamentarians like yourselves to set a vision and say, “This is way in which we would like decentralisation to happen; Treasury, please would you find a way in which that will work?”
Chair
We are thinking for a new role for the Treasury, then.
Ed Cox
The Treasury absolutely does need to work differently and it is down to you as parliamentarians to hold it to account, and ask it to do the things that are within your vision for decentralisation.
Liz Peace
I do not have a lot to add to that, because I am not really in the business of trying to design a devolved financial structure. I am much more interested in this in the context of what needs to happen to facilitate the sort of growth we want to see in the regions.
Chair
What would business be looking for out of it?
Liz Peace
Business very quickly wants three things. It does want a degree of devolved financial power, because that way you actually make the whole role of local government different and it starts to attract better leaders—and the one thing we are all agreed that we need in local government is high‑quality leaders. Currently, of course, some places already have good quality leadership, but we need more of that. It has been shown that where you have good leaders you get more growth and better-planned, more effective development. That is the first thing. The second thing we need is a greater degree of relocation of the business rate—not necessarily the setting but the collection of it—because we need to show people that there is some reward for accepting growth and development. If local areas do not get back as much as they think they deserve, they will not encourage development in the future. They will not accept development. The third and slightly more specialist area, which some of the previous panel touched on, is we need to see a greater degree of devolution to allow for investment in infrastructure, which in turn facilitates development. This is back to tax increment finance. I can talk at great length on how Government has rather given with one hand and immediately pulled it all back with the other. It has not been a real devolution at all. Those three things would actually encourage the sort of development that encourages growth.
Chair
Councillor Box, I have one point. You are here from a key city. You are also part of the Leeds city region. Do you really want to have your cake and eat it here? You have two demands; you can hardly lose, can you? Speaking a few minutes ago, Tom Riordan hardly spoke about Leeds as a city; he was speaking about Leeds as a city region. He was speaking for Wakefield as well, was he not, about the powers devolved to Leeds? They will go to you as well.
Cllr Box
The demands where you cannot lose are the best kind of demands. No, we work very well with Leeds and the other West Yorkshire authorities at a combined authority level. Indeed, I chair the West Yorkshire Combined Authority. There will be devolution down to individual cities. There will be devolution to some county areas, depending on the arrangements that they arrange for themselves. However, there will also be devolution down to a combined authority level. In terms of transport, for example, the ask of Government was to help us create a £1 billion transport fund, because to do it individually almost does not make sense. We came together to do that. Over time, that may expand to look at other regeneration issues, but there is no problem in terms of devolution to individual cities and, at the same time, authorities coming together to get a better deal if it suits a particular area.
Chris Williamson
If we assume then that London and the Core Cities are going to achieve fiscal devolution, what will the knock‑on effect of that be? Will it be positive or negative?
Ed Cox
I would be delighted to see some devolution to London and the Core Cities. Immediately, you have the indirect benefits of more prosperous Core Cities and a more prosperous London spilling out. Let us be careful about trickle‑down effects, but, generally speaking, that might well be beneficial. I can see a more prosperous Leeds benefiting Wakefield, for example, as Councillor Box has just explained. That is an immediate positive. We already have evidence from places like Glasgow and Cardiff that devolution in those places has benefited their wider economies and those cities themselves. As the evidence grows that devolution is better for the country—whether it is in terms of economic growth, public service reform or democratic accountability, for that matter—so it will benefit other areas as central Government realises this is a good thing to do for all places and not just for a few. You will then be able to see the benefit to these key or second‑tier cities—whatever you want to call them—building on that same premise and potential. Once again, I go back to the fundamental point, which is that until central Government recognises that some of those benefits are there—it is implied in your question is that you do—we will not see this steady programme of decentralisation that needs to happen.
Chris Williamson
If I could come back on that, before I ask Peter and Liz to come in, were the Key Cities Group wrong when they said that a selective approach to devolution would lead to increased inequality within the regions and reduced outcomes overall?
Ed Cox
For a start, what is interesting to me about this meeting as a whole is the way in which all of you constantly seem to want to divide and rule a little bit. That is quite interesting as an observation in itself, but, to answer your question, if we did decentralisation badly, in what I would call a non‑programmatic or piecemeal way, some of the dangers the Key Cities Group highlights are real dangers. Even the Core Cities would agree they are real dangers. If you decentralise in very narrow ways to very narrow local authorities, there are some risks in that. However, it is not beyond our wit, as central and local government working together, to be able to find a programme of decentralisation that enables both prosperity and rapid growth in those Core Cities where that might happen, but at the same time decentralisation so that key cities can benefit as well. You talked earlier about equalisation. With good and transparent equalisation processes in place, I do not think the levels of inequality that parliamentarians like to fear will be as great as some people suggest.
Chris Williamson
Peter, in terms of whether London and the Core Cities achieve that fiscal devolution, do you have any thoughts on the wider point about whether the surrounding areas will get a positive or a negative impact from that? You could maybe then follow on to that supplementary point.
Cllr Box
It is not tenable to say you will only devolve to the Core Cities. In fact, I do not think the Core Cities are saying that.
Chris Williamson
Assuming you did, though, Peter, would the benefits be positive or negative to the surrounding areas?
Cllr Box
I cannot say. It may well be different in different areas. Effectively, what is being said is that we should rely on trickle‑down economics, because if everything goes to a core city, everybody within the city area would benefit. That is not necessarily the case. There might some benefit over the long term, but the problem with that is the long term might not be sufficient to enable those other cities to survive. Speaking on behalf of the Key Cities Group, there should be devolution to the key cities as well and, at the same time, that is not going to stop Wakefield, Kirklees and Bradford working very closely with Leeds through the combined authority. We do not see it as a problem to do both.
Liz Peace
There is a bit more about what sort of places have a vision and will then be able to take advantage of this degree of devolution. We have done some work with the Local Government Association; we have looked at a number of local authorities who have worked with us on how to promote public‑private partnerships. Two of those—I am not sure whether they are in your key cities or not; I lose track of the definitions, but they were not Core Cities; they are probably just towns, in fact—had plans to do great things and were actually held back by not having the ability to get into a partnership with the private sector and take advantage of a degree of borrowing to put in the sort of infrastructure that would unlock development. Somehow, it seems inherently unfair to only give this degree of devolution to the handful of Core Cities that have made the best argument or even to the next layer down of key cities. It is more to do with who has a visionary plan to be able to benefit from that devolution. Fundamentally, you are looking for places that have shown the right degree of strategic vision and have shown they can actually use this devolution.
Chris Williamson
What would you say to those who say that smaller cities should focus on locally pooled resources and decision‑making rather than full devolution? Would that not achieve some of the benefits you have identified?
Liz Peace
Yes, but they still cannot do it. The particular example I have in mind is a particular town in the south east midlands, which could not do the sort of fiscal innovation that they needed. They could not do the borrowing because they could not securitize their future income, even though they had an extraordinarily good case. I do not see why they should not have been able to do that.
Cllr Box
As I said, we are not competitive. The population of the key cities is 8.9 million. In terms of jobs in manufacturing, in the key cities it is 11%; in the Core Cities it is 9%. That perhaps gives a sense of perspective. The idea we are in competition is not true. We are not. We are not in competition with Core Cities; we have the same aim. We work closely together through our combined authority.
Chris Williamson
What would be your response to those who say that smaller cities should simply focus on locally pooled resources and decision-making, rather than full fiscal devolution? Do you think that would be acceptable?
Cllr Box
It is perhaps to misread the local situations. For example, there is nothing wrong with the three big metropolitan areas in West Yorkshire—Bradford, Kirklees and Wakefield—having powers devolved to them and, at the same time, working very close with Leeds, which is a core city, on transport, for example. There is no divide in the way that perhaps is being suggested.
Ed Cox
This is where we need to look at what a programme of decentralisation looks like, rather than there being one power, to decide to whom something goes, to what level it goes and whether it is appropriate for it to go a level below. I would look at it over a period of two Parliaments. If you look at Japan or France, they have taken this kind of approach, where they have looked at it over a 10‑year period and they have said, “What kind of powers would be devolved to which levels at which points during this 10‑year process?” IPPR is currently working on a nine‑month project to do exactly that: to look at the different Government Departments and the different fiscal areas that we would want to see decentralised, which level they would go to and what timeframe would be best to do that over. You come up with a programme then that enables you to say, “Yes, at the beginning there will perhaps be a big‑bang approach for the Core Cities, counties and those who have the capacity and the democratic accountability to get on with it.” Over a period of time though, we can see what is coming down the line for smaller places, how that relates to those Core Cities—because of course there are overlapping territories, as Peter has suggested—and then those things that are standard things that need to be decentralised everywhere to local authority level, particularly around public services. It is perfectly feasible, if there is a will. I put it back to you: is there really a will centrally to do this? If there is a will, we have the expertise within central and local government, and amongst the think tanks, to be able to find a way through this.
Chris Williamson
I have one final question in relation to York’s suggestion, which you may have heard about, that we should remove bureaucratic restrictions to enable combined authorities to evolve on a basis of economic markets, rather than geographic links.
Liz Peace
It sounds perfectly feasible. That is what my members operate in. They do not operate in geographic boundaries; they operate in economic areas. The first thing is that the property industry will go where they think there is demand for their product. They will also be influenced to some extent by the reception and the sort of support they will get from the local government in the area in whatever shape or form that is. If there is a strong need for some form of infrastructure to support the development, they will want to look for somewhere that will either help them access that infrastructure and help get it built, or help them find other means of financing that.
Chris Williamson
Local people do relate to geographic areas, do they not, though?
Liz Peace
The distinction between a geographic and an economic area is interesting. From the perspective of the property industry, you would be looking at what your catchment area was for a particular development. If it was a shopping centre, it is where your shoppers are going to come from. That is both economic and geographic to some extent. For my industry, it would be a slightly false distinction.
Cllr Box
We built a new art gallery two years ago, the Hepworth Gallery, and we get people from all over the world. Somebody from Australia was the one millionth visitor just before Christmas. By and large, people tend to stay in hotels in Leeds. When they drive down the motorway, they do not get to the boundary with Wakefield and say, “Thank God we are going in to Wakefield and leaving Leeds behind.” People are more interested in the product and they are not overly fussed about whether a particular destination like the Hepworth is in my borough or in Tom Riordan’s.
Ed Cox
For me, the question that the York issue raises is the extent to which we try to design a programme or model of decentralisation top‑down or bottom‑up. For Whitehall officials, it is a huge problem to think that York might be sitting out there somehow linked to Leeds, but not geographically. What do people do? Do they use a helicopter to get in and out to make decisions? I do not know. Do you see what I mean? You can see, from a top‑down perspective, it is not very neat and tidy. However, I would advocate, as the Government has done to a degree with Local Enterprise Partnerships, for better or worse, that what we actually need are bottom‑up arrangements where local authorities working together come forward and say, “These are what we would propose to be the arrangements that we would like to see.” Central Government then has to say, “You need to get your acts together in order to do this,” because the question that then comes back is, “What if local authorities cannot get their acts together?” Then they get left behind a little bit and it is up to them to sort themselves out in order to be able to get the benefits of decentralisation.
Simon Danczuk
There has been far too much talk about Yorkshire for my liking, so we will move on. I will start with you, Peter, but, Ed, you started touching upon this a few minutes ago. The Key Cities Group said that, “Government should develop a menu of devolved fiscal and other powers for all tiers of local government.” What other powers might be on that menu, Peter?
Cllr Box
If you look at the submission, we have talked about having different stages of fiscal devolution. You can have a localisation of the work programme to cities, for example, or sustainable communities and the localisation of probation services. That is what the Key Cities Group is calling for in the first 12 months. Over a period of time, we are saying that might be different and rolled out to gain the trust of Government that this can be different, but also it can be effective and it can save money. If I can give you one example, because I know that the evidence is there, we estimate that there are 33 different funding schemes in local government for re‑engaging people and helping them get back into work. Nationally, that costs about £15 billion. It has been estimated that if that were devolved to a local level, it could save £1.25 billion a year and cut youth unemployment by 20% over three years. That is evidence that has been produced by local government. It has been sent to Government and it shows the scale of what can be achieved at a local level and still achieving some huge savings.
Simon Danczuk
If we can stick with that as an example, the previous Labour Government did not devolve the new deal for the unemployed down to local authorities; they devolved it down to Jobcentre Plus. One argument was they did that because they did not trust—I will try to say it politely—local government to deliver it smartly. Irrespective of party politics, the reality is that there is—whether it be in Whitehall amongst civil servants or amongst national politicians in ministerial positions—a fear that local government cannot deliver on that sort of thing.
Cllr Box
Sadly, there is, yes. Before every election, political parties campaign on devolution. When they get in power, they sadly disappoint us. That is the truth and the question is why that is the case. You talk about trust; the reality of what local government has achieved—not on its own, but working very closely with the private sector—is second to none. If you actually called into aid the Prime Minister, who said publically that local government is the most efficient part of Government, then on this occasion I would agree with him. Perhaps not on every occasion, but on that one I would agree with him.
Ed Cox
On the menu question, we are systematically working through every Government Department and every funding stream at the moment at IPPR to address that. I have 40‑45 different areas of Government where we were looking at what needs go on the menu. If you want me to, I will break them into three big categories.
Simon Danczuk
Yes, please do.
Ed Cox
One is around economic development powers, which are absolutely fundamental. Another is around public services, i.e. schools, police, health and those kinds of things. The third is around fiscal powers that we think need to be decentralised. We are working through each of those and we are looking very systematically at where they currently lie and where they might be more effective, if they were to lie there, and what a programme of change looks like around that. That is the menu question. The way we would then perhaps do that—we have not finalised our thoughts about this—is that different parts of the menu would be put into different packages. We cannot be doing this city deal process with 450 local authorities or more, or 39 LEP areas, for that matter. It is too bureaucratically cumbersome, but we would put different parts of the menu into different packages and then we would look at a waved rollout of different packages for different areas over a period of time. That is roughly how we think the process might work. On the trust question, it is a very important question. It is fair to say that, as Parliamentarians, you have not trusted local government enough. A number of panellists have explained that you should and given evidence as to why you should. The problem is that we are in a vicious cycle here. Let us remember the abolition of the Regional Development Agencies. It is not that I want to stand up for the Regional Development Agencies, but they did cause a greater centralisation of economic development powers again. The more you have taken powers away from the local level, the more you have infantilised local government and therefore reduced the public’s trust in local authorities. It is quite incredible that the level of public trust in local authorities is still much higher than it is in you Parliamentarians, even to this day, despite the fact that so many powers have been taken from local authorities. The way to restore trust is to give those powers back again. People will then come clamouring for more accountability and so on.
Simon Danczuk
Liz, your members are lobbying hard for local authorities to have even more powers than they have already. What are they asking for?
Liz Peace
There is a little ambivalence here, because to some extent you will find the business community, and certainly, the people I represent in the business community, still have this degree of nervousness of what local authorities might do with a huge amount of power—for instance, a rate‑setting one. If you asked my members or, indeed, CBI members whether they want local authorities to set the business rate, there would be shock and horror. No, they do not want that. However, they do want to see a greater degree of ability in local authorities to do the sorts of things that will influence the way their area can grow. That is the important area. In a way, it is not just giving power; it is giving power that will produce something else that is of benefit to that local authority. After a while, you can judge whether that has been successful and, indeed, judge whether you were right to have given that degree of fiscal devolution.
Bob Blackman
Looking at governance arrangements, London’s governance arrangements are an elected Mayor of London, an Assembly and London boroughs, which have different arrangements. How applicable is that type of structure for governance outside of London?
Cllr Box
There was actually a vote in Wakefield in 2012 and the people of Wakefield voted for me, because the question was, “Do you want to retain a leader and cabinet?” It was not, “Do you want a mayor?” There was a big majority in favour of retaining a leader and a cabinet. I am personally against elected mayors. Most of the city leaders in the Key Cities Group are against elected mayors. It is about power, not position. That is what it is about. In one sense, it does not matter what the head of a place is called. It is about the powers that he or she has. That is the crucial thing. There could be an elected mayor over an area that has no power, in which case it is simply a title. I am not overly fussed about the title; I am more bothered about the power that I have in my city to make a difference.
Bob Blackman
If you or others were challenged to have the elected mayor or directly-elected-leader model and have more power and responsibility, what would you say to that?
Cllr Box
I would say there are people who are still obsessed with an elected mayor and the title, rather than the power. That is simply my view. There are people who are looking at the title and the elected mayor—it happens in London; I am not saying it should not happen in London—and they are forgetting what is really important. What is really important is the power that any local authority or any city has.
Ed Cox
As a simple answer to the question, London does represent a very good model, for precisely the reasons that are evident all around us. Central Government does trust London’s Government very well and consequently invests in it very heavily, to a much greater degree than any other place in the country. To that extent, it is a good model. I would go slightly further, though, and say there are a range of conditions that need to be satisfied between central and local government. Be very careful of the language here: these are not conditions that central Government is imposing on local government; this is not earned autonomy and that kind of thing. This is about an arrangement between two adult partners trying to sort out what the power relations need to be between the two of them. There needs to be a number of conditions that need to be satisfied in order for fiscal decentralisation to take place in the way in which I hope you are imagining. This would be things like, “What does the functional economic area need to look like? Can the local area define that and how that works? What information and transparency arrangements are in place?” Democratic accountability is fundamental.
Bob Blackman
On that issue, what is the role of LEPs?
Ed Cox
LEPs have a part in to play. Across the cities, there are various partnership arrangements. Each city has different partnership arrangements and the LEP is one of those fundamentally important partners to business communities. However, it needs to be part of a set of partnership arrangements, at that combined authority level, which are transparent and clear. It will slightly different from place-to-place. Democratic accountability is a fundamental condition. The more we want to decentralise fiscal powers, the greater levels of direct representation we need to see. We have made a case, for example, for a proportion of income tax to be assigned to combined authority areas. If you are going to do that, you need a directly-elected mayor in order to give the visibility and accountability. It is a little bit of horses-for-courses in this programme I am talking about. If you want different levels of decentralisation, you need different types of democratic accountability.
Liz Peace
The whole discussion around elected mayors is a distraction. It is perfectly feasible to have exceedingly good leadership without a directly elected mayor, following the normal processes we have to elect members of a council and for the majority party to elect a leader. I am sure you have been told many times already by your witnesses that one of the most successful local authorities does not have a mayor; it has a leader who works in perfect harmony with the chief executive of the council. I am talking about Manchester; that is a place where you will find that most of my members are absolutely delighted to go and discuss investment and development, because they trust this dynamic duo implicitly to deliver. You do not need an elected mayor to do that.
Bob Blackman
That is despite the fact that Manchester has a whole number of different authorities and the leader and chief executive only control the city centre.
Liz Peace
Indeed, they do. Of course, by dint of their own skills they have managed to pull together the Greater Manchester group, which again seems to work extremely effectively and leads this to be the sort of place where the private sector are willing to go and discuss investment.
Bob Blackman
However, there is no democratic accountability to the residents outside of the immediate city centre area for that purpose.
Liz Peace
The Greater Manchester group comprises representatives of councils that have indeed been elected. For the purposes of delivering the best services to their members, they have come together with others and, between them, they have acknowledged a leader. Not everybody can be a leader.
Ed Cox
As a resident of Manchester, it is just important to note that Greater Manchester Combined Authority has just announced a fundamental root‑and‑branch review of its accountability and its partnership arrangements, because it has half an eye to the fact that a degree more direct election might be suitable if it wants the kind of powers that perhaps Treasury is considering for a place like Manchester. That is notwithstanding the comments Liz has made, because the current arrangement has been very effective. To some extent, however, it does have a time limit and, therefore, we need to look at how works.
Liz Peace
We have to be very careful we do not get rather distracted by it and it takes attention away from the economic achievements.
Bob Blackman
I have one last question before we move on. One of the issues in London, for example, as a London MP, is that if I challenge Ministers on travel, police or anything else I am told, “That is a power devolved to the Mayor.” MPs in London are effectively divorced from decision‑making. What role do you see MPs in these new devolved areas playing over the Government’s arrangements, if any?
Ed Cox
It sounds to me like an ideal situation where we have seen genuine power decentralised. Then the public and the parliamentarians themselves have to go to the people that hold the power, namely in this case the cities, in order to discuss the way in which that power is exercised. That sounds like a very mature democracy.
Bob Blackman
Do you not see a role for MPs in holding local authorities to account for the services that are being provided?
Cllr Box
No.
Bob Blackman
You do not, that is fine.
Cllr Box
Of course not, no. There are different roles. I went to Westminster to explain to MPs what a combined authority was about and what it meant. I will not name the person involved who turned around and said, “What is in it for my constituency?” When you are working at a combined authority level, it is about more than the individual constituency. We make decisions that we think are best for the combined authority economic area. That might mean on occasions that my area is disadvantaged in that investment goes elsewhere sooner, but that is what you have to do when you are working at that level. There is a clear role for MP colleagues, of course, but to say that they would somehow be on the combined authority would not work at all. By the by, we have the Chair of the LEP on our combined authority. There is a very strong link with the private sector on the combined authority.
John Pugh
Liz, you said that Manchester was a very efficient arrangement that worked very well—and I would tend to concur with that. Ed, you said nonetheless they are considering this. They were not thinking of changing because it was not efficient, but because it might be a precondition of further devolution of powers—i.e. for no other reason than somebody who is devolving powers wants it to happen. Is that right?
Ed Cox
No. We would all have to go away and look at the terms of reference of the radical root‑and‑branch review of the Greater Manchester Combined Authority. One of the best things that Greater Manchester does, as with other cities, is do things on its own terms and not only do them because Government is seeking for them to be done. However, one consideration Greater Manchester Combined Authority is making at the present time is, “If we were to change our arrangements a little bit, would that make it easier for Treasury to let go?”
John Pugh
That is absolutely the point, is it not? The Treasury—or, rather the Government—is setting a precondition that has nothing to do with efficiency; it is to do with preference for particular modes of governance. They have not given any other reason; the only reason Greater Manchester Combined Authority are reviewing their governance is because they sense the Treasury’s feelings about devolution.
Ed Cox
It would be a wonderful day if Treasury did set some preconditions for the kind of decentralisation we are talking about.
John Pugh
You mean if these were based on evidence.
Ed Cox
It would be even better if they were based on evidence.
John Pugh
The evidence is that Manchester works fine as it is.
Liz Peace
I am looking at one particular relatively narrow area of the private sector, which is development. Certainly, from my perspective, Manchester is a place you can go and actually get a good, sensible hearing. You do not get it all your own way; you have a good tussle. My members have always said they count their fingers before they go in and when they come out, when they have seen the Greater Manchester group. That is fine: you want equals with whom you can have a negotiation.
Chair
We will test that next week. We are in Manchester, so we will wait and see.
Liz Peace
Be careful.
Mark Pawsey
We have heard some arguments in favour of fiscal devolution and in earlier evidence we have heard ways in which local authorities might finance these new powers. We have heard about tourism tax and local tax. Can we first of all take it that everybody agrees that a property‑based tax is the only way it can be done?
Ed Cox
No. Property‑based taxes are very important as part of the mix of those fiscal powers we want to decentralise, but in a recent report that we have published we name five or six other things. To start off with, let us keep it simple. The kind of place‑based budgets that Michael Heseltine recommended to the tune of £49 billion over four years would be a fantastic start; the Government has currently committed £2 billion to that kind of process. The kind of earn-back model we have seen in Greater Manchester around transport funding could be run across welfare‑to‑work programmes and many other Government funding streams that are going in at the moment. That will be another step. We have recommended the assignment of 10% of income tax, for example, to local authorities.
Mark Pawsey
You are actively lobbying in favour of income tax going to local authorities.
Ed Cox
All of these things should be on the table. Let me go back to first principles: you, as Parliamentarians, need to have a vision for what decentralisation needs to look like. If we look at fiscal decentralisation in other countries, in Sweden and Germany over 50% of revenue is raised and spent at the local level. If you are very generous in the way you consider council tax, we are at just about 12%. It is up to us as a nation to ask the question, “Do we really want to be with Romania and Bulgaria and those other countries at that bottom end of the decentralisation league or would we rather be with the prosperous and developed nations at the other end?” Once we have set that vision—and I would argue that 50% should be what we aim for—we then have to ask the question, “What are the fiscal measures to get us there?” You have to put income tax into the equation.
Mark Pawsey
Peter, if we are going to give you all of these new powers, how are you going to raise the money?
Cllr Box
You mentioned tourism tax; that is one thing that can be done. The Local Government Association is looking at municipal bonds. In fact, I had a letter today from a local authority that is looking at, and intending to lobby the Secretary of State for, a local levy of up to 8.5% on large supermarkets, which has to be used specifically to improve local communities. That is on those supermarkets that have a rateable value above £500,000. I am not endorsing any of those schemes; all I am saying is that there are schemes around that different local authorities think are suitable for their area. To say there are no schemes is wrong; there are some. Some might not be palatable, but that is part of localism.
Mark Pawsey
Liz, the two other people on the panel are suggesting some weird and wonderful schemes for raising tax, but the only game in town, frankly, is the localisation of business rates. What are your members’ views of the localisation of business rates?
Liz Peace
Our membership is quite excited by the proposals for the localisation of business rates. I will not say that members actually started reading into the subject, because it was all far too complicated, but, as with that old scheme of several years ago, whose name I cannot remember—
Chris Williamson
Is it LABGI?
Liz Peace
That is right, LABGI. However, the localisation of business rates has become so fiendishly complicated. The whole rebasing at the 10‑year point has limited the perceived value of it from my members’ perspective. What they were looking for was for local authorities to be able to have the ability to borrow against future business rates streams. That largely dissipated in the light of this reset point.
Mark Pawsey
You spoke earlier of the concern of your members at what local authorities might do with these extra tax‑raising powers.
Liz Peace
They are trying to balance one thing against the other: a degree of nervousness in case a local authority went mad and whacked up the business rates phenomenally, if they had rate-setting powers, compared with the wish to see local authorities having a degree of freedom to borrow.
Mark Pawsey
Mr Cox, despite what you have just said, you proposed a power to control the amount of increase that a local authority can have on its business rate to RPI plus half the size of any council-tax increase. Would you like to rationalise that? Where did that come from?
Ed Cox
One of the things businesses fear is that they do not have a direct vote in local elections. The reason we would suggest decentralising council tax properly and business rates is because we think local authorities should be held accountable for the tax they raise.
Mark Pawsey
Could they go and do something absolutely barmy?
Ed Cox
If a local authority wants to raise council tax, it will be held democratically accountable by its local population. Linking business rates to that—we are saying it should be half the amount—gives businesses a greater level of confidence that a local authority is not going to run off and put business rates up to any level without there being a democratic process.
Mark Pawsey
That is quite a fetter on the power of local authorities to raise revenue. Peter, how would you feel if Ed’s idea was implemented?
Cllr Box
It is an interesting point that you raise. What if, because of devolved powers, a local authority did something outrageous? That is the gist of the question. Of course, I would turn it around and say, “What if Parliament ever did anything outrageous?” I am making the general point that if you are serious about devolution and localism, sometimes local government will take decisions that parliamentarians do not like. That is the nature of it. As Ed says, we are accountable. I cannot see how any sensible local government—with all due modesty, I say most of us are sensible—is going to take a decision that is going to mean that we have outrage and business and every individual constituent complaining. It does not work like that. Sometimes there might be the odd case where a decision is taken that is not the norm, but that is what happens when you have genuine devolution.
Mark Pawsey
Are you arguing that the risk of an authority taking leave of its senses and putting up a business rate massively is a price worth paying for more decentralisation? Is that what you are saying?
Cllr Box
If you are serious about devolution and localism, clearly that can happen. In any country in the world where there is devolution and decentralisation, by its very nature that is a remote possibility. However, at local level we are like you are at parliamentary level, in that we are accountable to the electorate and we are accountable to business, who quite rightly have an increasingly large voice in what we do at a local level. We do not do things and succeed by ourselves; we do it in partnership. For us to do that without consulting and without thinking about all the ramifications is not likely to happen at all, but I obviously cannot give you a cast‑iron guarantee.
Mark Pawsey
For all of you, presumably, the current business rate retention scheme does not go far enough; you would like to see that go further. However, if they were going to have a system based on property taxes, we would need a revaluation of property values. How long do you see the current system running for and how often would you like to see a revaluation taking place?
Liz Peace
Are you talking about a revaluation for the purposes of rebasing or a simple revaluation of business rates?
Mark Pawsey
A property‑based tax has to be based on current valuations.
Liz Peace
Absolutely, yes. We are in chaos at the moment, because, of course, it is based on the values just prior to the recession, which is what is causing the problem. I see no reason, with modern technology, why you could not move to a far more frequent revaluation of property.
Mark Pawsey
What would be a sensible frequency from the BPF’s point of view?
Liz Peace
We have talked about two years.
Mark Pawsey
You want to keep the valuers in business, do you?
Liz Peace
We have to make it easier, we have to use technology; and we have to be able deal with disputes rather more easily. Of course, if it changed more frequently there would probably be fewer arguments, because you would know that it is actually going to get reconsidered in a shorter space of time. At the moment, there is such a long pause in between.
Mark Pawsey
Presumably a two‑yearly valuation would be simply an RPI‑based valuation.
Liz Peace
Yes.
Mark Pawsey
And your members would be happy with that.
Liz Peace
Yes.
Ed Cox
If we are talking specifically about business rates, there is a very rational case, which Liz is making. If we are talking about a revaluation and a rebasing across a number of decentralised fiscal measures—
Chair
You mean a resetting.
Ed Cox
Yes, a resetting. You need a longer period of time to make sure the incentives are there built within the system.
Mark Pawsey
So you would have a 10-year—
Ed Cox
Possibly. Can I make another very important point on this? There are two things here. First of all, the basis on which this is being done needs to be very clear. It needs to be transparent. At the moment, most of our funding formulas around decentralised finances are completely incoherent and you cannot understand how exactly how they have been done. Secondly, I would suggest we consider an independent body to undertake some of this work, rather than it being left within the hands of politicians. That is a debatable one and it is not IPPR’s position as things stand, but it needs to be part of the conversation as to the role of an independent body.
Chair
You want something like the Office for Budget Responsibility for local finance.
Ed Cox
Yes, but one would hope that it was slightly better than the OBR.
Mark Pawsey
The benefit of the property-based tax is that it is pretty certain, is it not? Property is immobile. It is not going to move around; that is the evidence we have received so far. How often would you like to see the business rate revaluation take place?
Cllr Box
Could I rewind slightly, if you do not mind? The question was raised earlier as to why devolution has not happened sooner when apparently politicians from all the main parties support it. I would suggest that is because of civil servants, who are a brake on innovation in many cases.
Mark Pawsey
Did you call that the “blob sphere”?
Cllr Box
That is what I think: there can be a block on innovation. The real issue is to make sure the question you ask does not delay devolution. You can get lots of questions asked about why this, why that and why the other, and that can delay things. There is a real appetite. It will not go away. The sooner it happens, the better it will be for local government, business and national Government. Rather than give a specific answer—I am sorry about that—I would say that this should be one of the things that is talked about once the principle of devolution has been agreed, because yet again it will be an excuse for months and months, if not years, of delay about why nothing happens.
Mrs Glindon
We have talked about equalisation a little bit. How will equalisation and redistribution work if only Core Cities achieve fiscal devolution?
Ed Cox
My point would be that we would hope that it is not just Core Cities that receive it. That is the simple answer to the question. The deeper point is about how we create a system that allows for a degree of equalisation. There were some very good answers in the previous session. However, as I said, there are some important principles for me: it needs to be done in a very clear and transparent way, as opposed to how it is now; there needs to be a reset process every 10 years to allow the system to run for a decent length of time and build up certain incentives; and I would suggest that we consider some kind of independent body, rather than expect that it is in any political party’s interest to actually revalue or reset equalisation measures at any given point in time. Those would be some of the principles you would need to set down to enable that to happen.
Cllr Box
There has to be equalisation to make sure that those areas that are particularly deprived do not have a situation that is worsening. That is my view. You do also need incentives for those areas that are growing. Those areas that perhaps do suffer deprivation now, once the equalisation has taken place, can move forward and try to engender the growth they actually want but in some areas is difficult, so I would agree with the comments that Ed and the previous panel made—particularly Tom, from the Leeds City Region perspective.
Liz Peace
I have nothing to add to that.
Mrs Glindon
If there were mass devolution, if devolved areas fail under fiscal devolution they will be penalised. Will the key cities and the counties be better off remaining outside of fiscal devolution in order to keep money coming in from Whitehall? Is it worth the risk?
Cllr Box
If you look at some of the key cities, in most of the key cities we are working extremely hard in terms of our local economies. In many of them we are proving successful, working with business colleagues and making a difference. I do not accept the premise you are putting forward: that there should only be Core Cities and not the key cities. At the same time, working at a combined authority level, there are opportunities there for money to be pooled as well.
Ed Cox
I agree with what Peter said. The Key Cities submission sets out precisely the fact that some of the key cities are growing just as fast if not faster than some of the Core Cities. Therefore, the proceeds of that growth should be retained locally; there is no reason why they should necessarily get left behind. I am not suggesting for a moment there are not some very challenging areas, which is why you do need some kind of equalisation or redistributive formula. That is true, but we should not work on the assumption, as we currently do nationally, of investing everything in London and bailing the rest of the country out in that way. We should not work on the assumption that you just take that one tier down and the Core Cities bail out everywhere else. No, that is not the way in which our economy should work. We need to ensure that every area has the potential to grow, and have a redistributive mechanism to allow those areas that do fall behind to catch up from time to time.
Liz Peace
I do not have anything new to say, but I just say how much I agree with that point. We should not lose sight of the fact that we are talking about allowing those people who are growing their business rate base to keep what they make. If they are growing, we want them to keep it, so that, wherever and whoever they are, it is in their hands to encourage a greater degree of investment and development, and they then get the proceeds from that. Of course there are some that will need to be bailed out; there will always need to be a safety net for those who have not quite got into that positive process. I do not see why those who have, who could be anywhere, should not be allowed to keep the proceeds of that growth.
Chair
Thank you all very much for coming and giving evidence to us. It is appreciated. Oral evidence: fiscal devolution to cities and city regions HC 1018 2