Wednesday, 8 January 2025 • Commons

Draft Combined Authorities (Borrowing) and East Midlands Combined County Authority (Borrowing and Functions) (Amendment) Regulations 2025

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The Committee consisted of the following Members:

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Chair: Derek Twigg

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† Bonavia, Kevin (Stevenage) (Lab)

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† Campbell, Irene (North Ayrshire and Arran) (Lab)

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† Cocking, Lewis (Broxbourne) (Con)

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† Edwards, Lauren (Rochester and Strood) (Lab)

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† Evans, Dr Luke (Hinckley and Bosworth) (Con)

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† Holmes, Paul (Hamble Valley) (Con)

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† Hume, Alison (Scarborough and Whitby) (Lab)

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† Kitchen, Gen (Wellingborough and Rushden) (Lab)

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† Lamb, Peter (Crawley) (Lab)

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† McMahon, Jim (Minister for Local Government and English Devolution)

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Osamor, Kate (Edmonton and Winchmore Hill) (Lab/Co-op)

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† Perteghella, Manuela (Stratford-on-Avon) (LD)

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† Race, Steve (Exeter) (Lab)

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† Simmonds, David (Ruislip, Northwood and Pinner) (Con)

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† Taylor, David (Hemel Hempstead) (Lab)

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† Uppal, Harpreet (Huddersfield) (Lab)

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Voaden, Caroline (South Devon) (LD)

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Sara Elkhawad, Committee Clerk

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† attended the Committee

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Fifth Delegated Legislation Committee

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Wednesday 8 January 2025

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[Derek Twigg in the Chair]

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Draft Combined Authorities (Borrowing) and East Midlands Combined County Authority (Borrowing and Functions) (Amendment) Regulations 2025

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09:25:00

Jim McMahon

I beg to move, That the Committee has considered the draft Combined Authorities (Borrowing) and East Midlands Combined County Authority (Borrowing and Functions) (Amendment) Regulations 2025. It is a pleasure to serve under your chairmanship, Mr Twigg. The draft regulations were laid before the House on 19 November 2024. They have three elements: first, the conferral of borrowing powers on the York and North Yorkshire combined authority, the North East mayoral combined authority and the East Midlands combined county authority; secondly, the conferral of the general power of competence for economic development and regeneration on the East Midlands combined county authority; and thirdly, the amending of certain parts of the East Midlands Combined County Authority Regulations 2024. I will come to each of those elements in turn, but, put simply, the regulations will extend the borrowing powers of the York and North Yorkshire and North East combined authorities to apply to all their functions, and enable the East Midlands combined county authority to borrow against its functions; confer on the East Midlands combined county authority its constituent councils’ general power of competence for economic development and regeneration; and make amendments to the East Midlands Combined County Authority Regulations 2024 to address typographical errors and additional operational requirements that were identified after those regulations were made. If approved by the House, the draft regulations will implement a commitment made to the three authorities in their original respective devolution deals. The regulations will match the Government’s ambition for English devolution by moving power out of Westminster and back to those who know their areas best. The extension and conferral of borrowing powers via the regulations is an important step towards empowering the authorities to invest in their local areas, giving mayors and local leaders the tools needed to stimulate their local economies and drive growth. Currently, in line with primary legislation, the York and North Yorkshire combined authority can borrow in relation to its transport, police and fire functions, and the North East mayoral combined authority can borrow against its transport functions. As a combined county authority, the East Midlands is unable to borrow against any of its functions. The regulations will allow all three authorities to borrow against any of their functions, thereby delivering on commitments made in their respective devolution deals. The three authorities and their respective constituent councils—13 in total—have consented to the regulations. The conferral of borrowing powers will bring the York and North Yorkshire combined authority, the East Midlands combined county authority and the North East mayoral combined authority in line with their existing combined authority peers, which have followed the same process for the conferral of borrowing functions. Additionally, it will bring the three authorities in line with local authorities, which are empowered to borrow for all their functions. As combined authorities and combined county authorities, the York and North Yorkshire, East Midlands and North East authorities are subject to requirements for borrowing provided for in the Local Government Act 2003. The prudential borrowing regime provides that an authority can borrow lawfully only if it can demonstrate that the servicing and repayment of its debts is affordable. This ensures that the three authorities’ proposed borrowing powers will be used appropriately. Like other areas, York and North Yorkshire, the East Midlands and the North East, as combined and combined county authorities, have a further check on their ability to borrow. Such authorities are subject to a debt cap, which must be agreed with His Majesty’s Treasury. Each agreed debt cap specifies the ceiling of the authority’s debt. I can confirm that all three authorities have successfully agreed their respective debt caps for the 2024-25 financial year, and negotiations on debt caps for the 2025-26 financial year are due to start shortly. The regulations also confer on the East Midlands combined county authority its constituent councils’ general power of competence. This power will be used only in relation to economic development and regeneration. The conferral of the power fulfils commitments that were made as part of the original east midlands devolution deal, which was agreed with all the constituent councils, and will enable the East Midlands combined county authority to support local businesses and grow the visitor economy. This was a fundamental element of the proposal submitted by the constituent councils—Derby city council, Derbyshire county council, Nottingham city council and Nottinghamshire county council—to establish the East Midlands combined county authority. The councils’ proposal makes reference to how the combined county authority will ensure that workers, businesses and local areas are supported, where possible, by schemes such as the east midlands investment fund in the delivery of key aspirations in net zero and skills. The conferral of the east midlands constituent councils’ general power of competence for economic development and regeneration will ensure that the combined authority is able to achieve its aims and deliver for the people of the east midlands. The limited conferral of the general power of competence is a new power for the East Midlands combined county authority, so the Deputy Prime Minister, in her capacity as Secretary of State for Housing, Communities and Local Government, must be satisfied that the statutory requirements outlined in the Levelling-up and Regeneration Act 2023 have been met. I can report that the necessary statutory requirements have been considered, and the Deputy Prime Minister is content that they have been met. The Deputy Prime Minister is satisfied that the conferral of the power will improve the economic, social and environmental wellbeing of those who live and work in the east midlands, is in keeping with the need to secure effective and convenient local government, and reflects the interests of local communities. An appropriate consultation on the conferral of this power has also been undertaken in the east midlands. Economic development and regeneration featured as a core element of the devolution deal that was signed on 30 August 2022, and was consulted on during the statutory consultation with residents, businesses and stakeholders on the establishment of a mayoral combined county authority in the east midlands. The consultation ran from 14 November 2022 to 9 January 2023, with the public and local stakeholders expressing support for the economic development activities that the combined authority intends to undertake. When asked about policies relating to economic regeneration and development, 48% of responses were supportive, with 36% unsupportive and 16% having no opinion. The use of the function, if conferred, will be subject to the provisions of the East Midlands Combined County Authority Regulations 2024, which have already been determined as securing effective and convenient local government. The combined county authority has a directly elected mayor and two members from each of its constituent councils. In the East Midlands combined county authority, decisions, including those relating to the use of the general power of competence for economic development and regeneration, are passed by a simple majority, but any such majority must include the mayor. There is an agreed mechanism for district councils to input into the combined county authority through four non-constituent members representing the views of district councils from across both two-tier areas. Other local interests are also represented through either non-constituent or associate membership of the combined county authority. There is precedent for the conferral of a combined authority’s constituent councils’ general power of competence for economic development and regeneration. Existing combined authorities, such as the West Midlands and the Liverpool city region, already have this power, which they have utilised for the purpose of economic development in supporting businesses and tourism in their areas. The East Midlands authority will similarly make use of the power for the benefit of those who live and work in its geography. The regulations will also make amendments to the East Midlands Combined County Authority Regulations 2024, which were made at pace to ensure that the East Midlands authority was established in time to hold its inaugural mayoral election on 2 May 2024. This was successfully achieved, not only ensuring that the mayoral election could take place but creating the first ever combined county authority. With the East Midlands combined county authority established, it has been possible to see how the legislation works in practice and, in discussion with the East Midlands authority, certain amendments to the 2024 regulations have been identified that are necessary to enable the authority to operate effectively and in line with its devolution deal, as originally intended. The amendments to the 2024 regulations will, first, enable non-constituent members to have voting rights in East Midlands combined county authority committees, provided that those non-constituent members have been granted voting rights by the East Midlands authority’s constituent members. Secondly, they will allow the Mayor of the East Midlands combined county authority to arrange for functions to be exercised by a committee of the combined county authority. Thirdly, they will clarify voting arrangements by specifically outlining that the mayoral budget requires a two-thirds majority. This is in line with other existing combined authorities and has been included to resolve any ambiguity, as has reference to the unanimous vote required for use of transport functions. The amendments in the regulations will also resolve a typographical error in the 2024 regulations in relation to the housing, planning and regeneration functions of the East Midlands authority. As the Committee has heard, the amendments to the 2024 regulations are of an operational nature, and will benefit the smooth running of the combined county authority by ensuring that it can function effectively and providing clarification and certainty on the use of its functions and powers. The amendments have been discussed with the East Midlands authority and its constituent councils, and both the councils and the combined authority have consented to the amendments being made. In conclusion, the regulations, which are supported locally, will continue the Government’s mission to shift powers and money from central Government to those in our regions with skin in the game. I commend the regulations to the Committee.

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09:35:00

Paul Holmes

It is a pleasure to serve under your chairmanship, Mr Twigg. I wish the Minister and all Members a happy new year. Considering the bulging numbers on the Opposition Benches, the Minister will be pleased to know that we will not challenge the regulations. But we do have some general questions. He gave a detailed explanation of the business before us but there are, as he would expect, a number of questions that the Opposition want to flag and that I would appreciate an answer to. The Opposition completely understand the reason for the measures and for the need to enhance devolution in the existing combined authorities. We must also stress the impact of excessive borrowing on taxpayers and council tax payers. It is important that—as the Minister would expect me to note—Conservative mayors have never raised the mayoral precept that they can impose. They have either cut it or not put it in place at all, while Labour mayors such as Sadiq Khan have increased it. However, we welcome the introduction of the debt caps agreed with the Treasury. Given his announcement on devolution plans a couple of weeks ago, the Minister would expect me to ask about the Government’s plans and mechanisms to legislate with the new authorities. Will they have to legislate en masse, or does the Minister expect to come to the House with other statutory instruments like this one, following consultations and the establishment of new mayoral combined authorities? What debt caps will feature in the future? Will there be central Ministry of Housing, Communities and Local Government guidance on acceptable debt caps and borrowing levels for combined authorities? What will the Government do to keep council tax down and ensure that the temptation to borrow more—particularly in the financial situation that we find ourselves in—does not lead to increased council tax or taxes on residents? Will the Minister not only urge the East Midlands authority, and other authorities going forward, to behave responsibly, but urge caution on borrowing with the powers that will be given to new combined authorities? As we move forward, will the Minister legislate to allow borrowing against all functions, as in the changes and adaptations he has outlined today, or will he look at it on a case-by-case basis, as local authorities come forward under his devolution plans? As we move towards devolution, another concern is about what will happen to the debt incurred by councils that choose to undergo restructuring. That is slightly outside the scope of the SI, but it is in the policy that we would have to see statutory instruments such as this one. Where will councils’ debt go when they merge into a new devolution settlement? Will councils have to have the difficult conversations on their own, and organise their own affairs, or will central Government support them as they go forward locally? Liberal Democrat-controlled Eastleigh borough council has a debt of £500 million. I do not think it will surprise the Committee that other councils do not want that council to merge into their functions under future devolution plans. [Interruption.] It comes as a surprise to my hon. Friend the Member for Hinckley and Bosworth, but it should not. I wonder whether the Minister will facilitate plans going forward and what Government support will be given to local authorities as they go through the mergers. I note that for the general power of competence for economic development and regeneration to be conferred on the East Midlands combined authority, a public consultation was required by law, as the Minister outlined. That is perfectly acceptable and right, and he gave a detailed review of the responses from the local public. I think it is safe to say that the feedback indicated general but not overwhelming support. What lessons will the Minister and the Government draw from the consultation mechanisms that were outlined? On reflection, how will he adapt transfers of the devolution of powers? What shape will future consultations take to encourage greater co-operation and participation by local residents when they face changes in their local authorities? Lastly, as we enter this phase of quite disruptive top-down restructuring, I hope the Minister will outline some detail on the policy going forward, and particularly on my specific questions this morning, beyond its current embryonic nature. Overall, we support the mechanism. We believe in devolution as an Opposition and as a party—it was set up by this party originally—and we look forward to seeing locally elected mayors deliver the powers and functions that this Government want them to.

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09:40:00

Jim McMahon

I thank the shadow Minister and wish him a happy new year in return. His were generally positive comments, with the exception of the standard view of the Mayor of London, who is obviously doing a fantastic job of delivering the Government’s missions—and long may that continue. Let me answer the shadow Minister’s questions, all of which were completely legitimate. We expect all public bodies, whether they are councils or mayoral combined authorities, to exercise their borrowing powers with the restraint that the public would expect. We expect them to borrow for a purpose and honour their borrowing commitments through the repayment schedule. That is why there is a clear mechanism in place for HMT to assess borrowing caps on an individual basis, reliant on the financial status of the local or combined authority in question. The checks and balances are robust and in place, and it may well be that the powers are not used in some places. The point is that as we move towards a new phase of devolution there has to be an assumption of trust and autonomy for local authorities to do what is right for their local communities, without them always coming cap in hand to the Government or waiting for a new Government grant scheme that they can bid into. In the end, areas will be expected to self-organise, to work with their local business community and investors, and to marshal projects for the economic wellbeing of the country. This devolution mechanism is very much about bringing the relevant areas in line with other authorities that already have those powers. We have seen mayoral combined authorities in particular making a difference to economic growth. Greater Manchester is significantly outperforming large parts of the economy elsewhere in England. That has been in large part because of the mayor’s convening role and the activity and energy of the local authorities, but also, importantly, because they have been able to team up and label different elements of funding to make schemes stack up and bring them to market so that they can be achieved. Having that role in place, with the legal powers required, is entirely what this mechanism is all about. I have a different view from the Opposition on the use of a mayoral precept. The reason for that is that every mayoral operation has a cost to it. We can all agree that we want them to be slim, efficient and nimble, but the idea that some mayors have a cost to them and some do not is frankly ridiculous. Every mayoral combined authority has an operating cost. The more that authority does, the higher that cost will be, reflecting the activity that has been undertaken. There are two ways to meet that cost. We can have a levy or a charge on the local authority, which is not particularly transparent and cannot be seen by the public. The public do not even get to see on their council tax bills how much has been spent on that function, so where is the democratic accountability? Alternatively, we can shine a light on it and say that the public have a right to know how much mayoral combined authorities cost. That should be transparent on the council tax bill, and the public, through the democratic voting process, will have the right to say whether they believe that money is being used to the best effect.

Paul Holmes

I do not want to break the spirit of consensus, but although the Minister is quite right that transparency is crucial to all local mayors and that the public must know how much the authorities cost, why is it that Labour mayors seem to be raising their precept much more than any Conversative mayor? Is he saying to the Committee that Labour mayors are inefficient and their operations cost more than those of Tory mayors?

Speaker

Jim McMahon

I do not want to say who has the largest number of mayors, but I do not think the shadow Minister needs me to remind him that there is only one Conservative mayor in the whole country, and in the smallest combined authority, as he knows. This is not particularly about rights and wrongs, and I suggest that it would be best not to stray towards the finances in the Tees valley. As a point of principle in terms of democratic accountability, taxpayers have a right to know which elected official is spending money on their behalf and to be able to make a judgment about whether that money is used to best effect. Having that transparency is an important part of this democratic devolution project. I understand why the Opposition would want to make hay out of a precept and refer to it as a new tax; I would say the public are paying one way or the other and it is far better that it is transparent. I will leave that there. This may be straying a bit too far from the SI, but we reject entirely any suggestion that devolution or reorganisation is top-down. Today, councils across England will meet to discuss whether they want to make their own submission ahead of the deadline this Friday for local government reorganisation and/or devolution. They will decide whether it is right for them. They will decide who they want to work with and whether they want reorganisation in some places, potentially with devolution with a mayoral combined authority. Some might decide that they are not in a position to join a mayoral combined authority but want to take the first step to a foundational agreement that begins that journey. That is not top-down; that is local areas working together to self-organise, and a Government who are facilitating that devolution. In the end, if we do not get power away from this place, we will not allow every part of our country to realise its full potential. Areas will always be at the behest of the Government, and that cannot stand.

Dr Luke Evans

I declare an interest as a Leicestershire MP. Leicestershire looked at joining the East Midlands combined county authority but decided not to. Given what the Minister said about this Friday, if Leicestershire decided that it wanted to go into D2N2, would we need further legislation to change the borrowing that is set again, and a further SI to add that in, or is there a mechanism lined up so that county authorities can join mayoralties without the matter having to come back to Parliament?

Jim McMahon

I am not sure that I entirely understood the question, but this SI is about new member councils joining an existing combined authority. Any member council can join, but its membership would need to be confirmed by secondary legislation, not least because in some places functions are exercised by the local authority as a member of a combined authority, rather than by the combined authority directly. The whole thing needs to be reconciled taking into account its new membership. Leicestershire has huge economic and social potential, but without devolution it will not realise its full potential and will get left behind. I do not know whether Leicestershire is making a submission on Friday, but I sincerely hope that it will. I encourage the hon. Gentleman and other hon. Members present to speak to their local authorities and encourage submissions. The regulations confirm the commitment made in devolution agreements with the York and North Yorkshire combined authority, the East Midlands combined county authority and the North East mayoral combined authority to provide them with borrowing powers against their functions. Providing borrowing powers will provide all three authorities with the opportunity to invest in their services and functions to the benefit of those who live and work in their geographies. The regulations will also ensure that the East Midlands combined county authority can operate as its devolution deal intended, by conferring the east midlands constituent councils’ general power of competence for economic development and regeneration on the combined county authority, and by ensuring that amendments are made to allow the combined county authority to operate robustly and effectively. I am confident that the regulations will give the authorities the tools to shape their futures, driving growth and higher living standards across their geographies. I commend the regulations to the Committee. Question put and agreed to.

Speaker

09:48:00

Speaker

Committee rose.

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