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Combined Authorities (Borrowing) Regulations 2018

Volume 790: debated on Tuesday 1 May 2018

Motion to Approve

Moved by

My Lords, I hope that the regulations will meet the same glad response that the previous order met with.

The draft regulations, if approved and made, will implement a commitment made by the Chancellor of the Exchequer to extend the borrowing powers of mayoral combined authorities that have agreed debt caps with Her Majesty’s Treasury. This extension of borrowing powers is an essential further step for mayoral combined authorities to be able to invest in economically productive infrastructure, giving local government the tools necessary to stimulate local economic growth and productivity.

Currently, primary legislation provides that combined authorities can borrow only for transport functions. Greater Manchester is the exception to this, as the combined authority inherited predecessor organisations’ borrowing powers for its fire, police and waste functions when these functions were transferred. In comparison, a local authority may borrow for any purpose relevant to its functions, or for prudent management of its financial affairs.

The Chancellor of the Exchequer announced in the Autumn Statement 2016 the extension of mayoral combined authority borrowing powers, allowing them to invest in economically productive infrastructure, subject to agreeing a borrowing cap with Her Majesty’s Treasury. This followed commitments in devolution deals to further consider the borrowing powers of mayoral combined authorities.

The regulations confer additional borrowing powers to the six mayoral combined authorities in Cambridgeshire and Peterborough, Greater Manchester, Liverpool City Region, Tees Valley, the West Midlands and the West of England. The regulations, if approved by Parliament and made, will allow each of these mayoral combined authorities to borrow in respect of all their existing functions.

The Local Government Act 2003 provides that combined authorities have a power to borrow for transport purposes. The Cities and Local Government Devolution Act 2016 amended the 2003 Act to provide for the Secretary of State to make regulations extending a combined authority’s power to borrow for other specified functions in addition to transport.

Each mayoral combined authority has a bespoke set of functions—powers—depending on the devolution deals that were agreed with the Government and the legislation approved by Parliament and made. Each of the six mayoral combined authorities has recently agreed a debt cap with the Treasury. Each agreed debt cap specifies the cumulative ceiling for the mayoral combined authority’s debt for each of the years 2018-19 to 2020-21, except in Cambridgeshire and Peterborough, where a new agreement will apply for 2020-21.

The Treasury’s requirement for debt caps reflects the Government’s ongoing commitment to balancing the books. Last week, the Office for National Statistics announced that public sector net borrowing has fallen to its lowest level for 11 years. All combined authorities are subject to the same statutory requirements for borrowing as local authorities, which are provided for in the Local Government Act 2003 and statutory guidance—the Act I just referred to. The prudential borrowing regime requires that an authority can borrow lawfully only if it can demonstrate that servicing and repayments of debt are affordable.

Taken together, these conditions provide the necessary assurance that the proposed borrowing powers will be used appropriately. By being able to borrow in relation to their functions, this will give mayoral combined authorities the financial flexibility they need to make investments in infrastructure essential to the area’s growth ambitions. It will be for each combined authority to choose their lender. Like a local authority, combined authorities are able to seek loans from the Public Works Loan Board, which I understand is today offering a fixed rate on a five-year loan of 1.85%. As required, each of these mayoral combined authorities, and each of their constituent authorities—44 authorities in all—has given consent to the conferral of additional borrowing powers to allow it to borrow in respect of all its existing functions.

The Government’s devolution programme continues. Later this week, voters across the Sheffield City Region will elect their new mayor, and I look forward to the same in the North of Tyne. Making these regulations will extend the borrowing powers to enable the six existing mayoral combined authorities to borrow in relation to all of their existing functions, as agreed in devolution deals and announced in the 2016 Autumn Statement. The mayoral combined authorities have each agreed debt caps with the Treasury, and are subject to the same prudential borrowing regime that all councils are subject to.

We seek parliamentary approval to make the regulations, a draft of which we are considering today, to help facilitate the establishment of economically productive infrastructure in mayoral combined authorities, laying the foundation for future economic success across our country. I commend these draft regulations to the House.

My Lords, I thank the Minister for his exposition. He knows far more than I could ever know about these matters, even though long ago I served in three Administrations. Can he look at the helpful Explanatory Memorandum, at paragraph 3.3:

“The instrument does not give rise to minor or consequential effects outside England”?

I cannot cavil at that—surely it is exact. However, the Minister will know, because of his distinguished service in the National Assembly for Wales, that there are sub-regional economies that cross borders. I refer to my entry in the register of interests, and I instance the Mersey Dee Alliance in north-east Wales, Wirral, Cheshire and Ellesmere Port. It is a unique set-up, which seeks to advance the only cross-border economy in Britain. It is a successful economy, and those local authorities in north-east Wales and greater Chester want to advance matters.

I have a question for the Minister, who was a leader in the National Assembly for Wales over many years. Can he explain—if he can, after my tangential reference —why these measures are not appearing in Wales? Is he able to mention one equivalent in Wales of, say, the Mayor of Liverpool or the Mayor of Manchester?

My Lords, I draw Members’ attention to my interests in the register as a councillor in the borough of Kirklees in West Yorkshire and as a vice-president of the Local Government Association.

The regulation is a natural extension of the powers of the mayoral combined authorities, and in that light it is to be welcomed. The functions that will benefit from investment where the authorities choose to use the additional borrowing powers are significant and of strategic importance to the development of those combined authority areas.

I say all that because I am not criticising the fundamental issue of the borrowing powers. However, I am concerned that additional borrowing by the mayoral combined authorities will result in additional costs being passed to the constituent local authority. So will the prudential borrowing code of the constituent authorities be affected by the additional borrowing permitted under these regulations?

The direct accountability between the spending body, which is the combined authority, and the tax-raising bodies, which are the constituent local authorities, will be fairly obtuse. If these powers are extended in this way, how will local council tax payers and businesses have a clear and transparent explanation of the use of the revenues of local authorities by the combined authorities if, for instance, there is no direct benefit for that particular part of the combined authority area?

The Minister mentioned Sheffield City Region, which will be in the fortunate or unfortunate position on Friday morning of having elected a mayor who will have no powers and no resources because that agreement has yet to come to Parliament and before your Lordships’ House. It will be an interesting conundrum for the Minister and his department as to what the newly elected mayor of the Sheffield City Region—he or she—will do.

I have a final comment for the Minister. The extension of powers to the mayoral combined authorities in this way is positive, with the addendums that I have already referenced, but it begs the question as to the continuing divergence of the powers of local authorities that do not have these additional powers because they do not have combined authorities and metro mayors. That is beginning to grow. The differences are beginning to be obvious and there will be an issue that will have to be addressed by the Government in one form or another. Has the Minister any thoughts to share on that issue?

My Lords, I have no issue with the regulations before the House this afternoon and I draw the attention of the House to my relevant interests as a councillor and as a vice-president of the Local Government Association.

As we have heard, these regulations in effect implement agreements between the Government and the combined authorities referred to in this order to increase their borrowing powers for various functions as listed in the Explanatory Notes. The lists of additional borrowing approvals are different, as each deal is bespoke. I know that the Government like this bespoke deal arrangement, but I am of the opinion that the jury is still out on that way of working, as one person’s bespoke deal is another person’s confused muddle, with no one knowing or being clear why one authority has certain powers and another does not.

I also noted in the consultation, as referenced in the Explanatory Notes in paragraphs 8.1 to 8.26, that there are still very small numbers of people coming forward to give their views on these consultations. It might be that the numbers compare favourably with other consultations that the department has undertaken, but, if we are to give proper weight to the views of local people—and these areas have millions of people living in them—some of the numbers are derisory. We need to look at other ways of consulting people to get their views on the proposals coming forward. Having said that, I am happy to approve the regulations tonight.

My Lords, I thank all noble Lords who have participated in the debate on these important borrowing powers. I welcome their participation; it is most helpful and reflects the general support we have had for the Government’s approach and the flowering of these combined authorities and mayoralties—particularly in the north and the Midlands—to seek to redress the great growth of the economy in the south and, to some extent, East Anglia. It reflects the importance that we attach to ensuring that there is strong economic development elsewhere.

First, I turn to the points made by the noble Lord, Lord Jones. I thank him for his kind words and reflect on his distinguished service over a considerable period of time in Wales and, more broadly, in the Government in Westminster. He is right that these provisions are England-only, because the department is England-only, but he is also right that exciting and important things are happening in Wales and across the border between Wales and England, around the River Dee and Chester. Also, the North Wales Growth Deal looks to links with the northern powerhouse and the Borderlands Growth Deal encompasses southern Scotland as well as Northumberland and Cumbria. Working with the devolved Administrations in Edinburgh and Cardiff is very much on our agenda. I can reassure the noble Lord that I was in Wales just last Thursday, speaking to the Labour Economy Minister, Ken Skates, to discuss the Mid-Wales Growth Deal and possible links with the LEP in the Marches.

Does the Minister agree that Mr Skates has made considerable advances in aiming for a better relationship between Whitehall and Cardiff?

I certainly do. I do not want to damage his future political career at this very sensitive juncture in Wales, but that would certainly be my reflection on things. My apologies to Ken if that does not help.

I thank the noble Baroness, Lady Pinnock, for what she expressed as her fundamental support for what we are doing here. I accentuate that the borrowing caps have been agreed with the constituent authorities, as well as the combined authorities. I note that she raised some issues, quite rightly, about the additional borrowing and asked for reassurance about the checks that exist. First, the cap has been agreed; as she will know, the Treasury is not generally profligate in these matters. Additionally, local authorities are already subject to a prudential borrowing code and regime, which will remain the case. The monitoring officer will be watching that like a hawk to make sure that it complies with the overriding requirement that the authority is able to pay back the debt that is concluded.

The noble Baroness is right that this varies from area to area; indeed, the noble Lord, Lord Kennedy, also made that point. These are bespoke deals. For example, there is a world of difference between Cambridgeshire, Peterborough and Liverpool City Region, so it is not surprising that there are differences between the areas in what is being devolved. The nature of devolution includes these electoral checks, done locally, and one has to trust that people will look after their area. It is the Government’s belief—widely shared in the House, I think—that these things should be dealt with at a level close to people’s jobs, homes and experience. That is precisely what is happening here. I note that the noble Baroness went on to talk about her positive welcome; I very much thank her for that.

The noble Lord, Lord Kennedy, also generally welcomed the borrowing powers. He noted, and I agree, that sometimes these consultations result in very few people responding. The same is true, sadly, of the number of people voting in local elections, which the noble Lord and I have discussed in other environments. I know that the average turnout is always higher in the noble Lord’s elections in Lewisham, for reasons we can only speculate on, but his point was fair. We often include a health warning and say that we are disappointed by the number of people who responded. Nevertheless, it is important that we go through that consultation exercise. I suggest that if we were doing something that was entirely off beam, the number of people responding would be greater. That is the experience. Nevertheless, it is a point well made.

I thank noble Lords for their general welcome for what are important powers for these combined authorities. I am not making a party-political point here, but I note the combined authorities’ success across the board. They are working well and are generally welcomed by the people in their areas.

The noble Baroness, Lady Pinnock, asked me to address future developments. We will be watching Sheffield. She is right that there are challenges there and, as noble Lords have seen, there is a challenge about the position of Yorkshire generally. We are looking at proposals that have been made relating to that. They have landed with us and we are looking at them. Obviously that is something we would want to discuss with the incoming mayor of the Sheffield City Region. It is not quite universal in Yorkshire. As the noble Baroness will know, Sheffield and Rotherham are not as warm about this as other authorities, let us say. That is what is happening there. We are aware that Leeds, for example, is the largest city without a mayoralty combined authority badge. It is important that that is put right.

We are looking more broadly at devolution now that we have, or will have shortly, eight combined authorities with the biggest cities, although not exclusively large cities, because Cambridge and Peterborough are somewhat different and we have a particular arrangement with Cornwall, where there is no mayoralty but there is a devolution deal. We are looking at that. In the fullness of time I expect to bring that back to the House for discussion. With that, I beg to move.

Motion agreed.