PARLIAMENTARY DEBATE
Draft Combined Authorities (Borrowing) Regulations 2022 - 9 March 2022 (Commons/General Committees)

I beg to move,

That the Committee has considered the draft Combined Authorities (Borrowing) Regulations 2022.

It is a pleasure to serve under your chairmanship, Mr Pritchard.

The draft regulations, which were laid before the House on 31 January, will implement a commitment made by the then Chancellor of the Exchequer, the right hon. Philip Hammond, back in 2016 to extend the borrowing powers of mayoral combined authorities that have agreed debt caps with Her Majesty’s Treasury. That is reflected in the devolution deals agreed with the Government for North of Tyne, South Yorkshire and West Yorkshire. The extension is another important step towards empowering mayoral combined authorities to invest in the right infrastructure while giving local leaders the tools needed to stimulate local economic growth, increase productivity and seize the levelling-up opportunities available to their areas.

In the levelling-up White Paper, we set out plans to transform the fortunes of places across the UK by spreading growth and prosperity in areas that feel Westminster has forgotten about them. The paper set out a series of long-term missions to put us on a trajectory towards that goal, including one to give every part of England a devolution deal by 2030. Proper devolution is a central part of our levelling-up agenda. We want to give areas the powers that they need, along with a simplified long-term funding settlement. We are committed not only to extending devolution, but to deepening it.

The draft regulations will live up to that ambition, deepening devolution in North of Tyne, South Yorkshire and West Yorkshire in line with commitments that we have already given, by providing new and deeper powers to local leaders so that they can act more flexibly and innovatively to respond to local need, and be held to account by local citizens. Put simply, the new powers will allow those three combined authorities to borrow not only for their transport functions, but for any of the other functions conferred on them as a result of their bespoke devolution deals. Those areas will be able to make the most of new opportunities by borrowing for their investment programmes, delivering improved public services and greater prosperity for their areas.

At the moment, the primary legislation in place allows combined authorities only to borrow for transport or where the Mayor is also the police and crime commissioner. The primary legislation also provides that the Secretary of State may, by regulations, confer the ability to borrow for additional functions. The draft regulations provide specifically that the three named combined authorities may borrow for all their functions. Each of the three mayoral combined authorities, and each of their constituent authorities—15 in total—has given consent to the regulations.

If Parliament approves the draft regulations and they are made, the North of Tyne, South Yorkshire and West Yorkshire Mayoral Combined Authorities will be able to borrow for all their functions. Through regulations made four years ago, that is already the case for the six other mayoral combined authorities. It is also the position for the generality of local authorities, which are empowered to borrow for all their functions.

In the same way as a local authority, combined authorities are subject to the requirements for borrowing provided under the Local Government Act 2003. The prudential borrowing regime requires that an authority can borrow lawfully only if it can demonstrate that servicing and repayments of debt are affordable. As such, that gives the necessary assurance that the proposed borrowing powers will be used appropriately. In the case of combined authorities, that ability to borrow is also subject to a debt cap agreed with the Treasury. Each agreed cap specifies the cumulative ceiling for the mayoral combined authority’s debt for 2021-22. The caps for future years are currently being agreed with all nine mayoral combined authorities.

The draft regulations will fulfil our existing promise to deepen the devolution deals of those three combined authorities and to extend their borrowing powers to bring them in line with the other six mayoral combined authorities. With that extension, they will be able to borrow to make the investments in infrastructure that are essential to an area’s growth. We believe firmly that that will also lay the groundwork for further levelling up in those areas. I commend the regulations to the Committee.

It is always a pleasure to serve under your chairmanship, Mr Pritchard.

I thank the Minister for his thorough and detailed explanation of this draft statutory instrument. I am sure that hon. Members in Committee will be pleased to know that we will not oppose it. It is something that each combined authority has been calling for; I spoke with Mayor Tracy Brabin, for example, and her office has been calling for it for some considerable time. As the Minister outlined correctly, the commitment was made some time ago by a former Chancellor. The flexibility to regenerate and invest in a broader range of opportunities—whether housing, transport or other infrastructure that we would all like to see developed in our communities—is most welcome.

I spoke briefly to the Minister earlier, before the Committee sat, and told him that I would ask a couple of questions. I do not expect an immediate answer; a reply in writing would be satisfactory and helpful. Clearly, some local authorities have made investments that they thought were sound, but turned out to be risky. Surrey County Council, for example, made a number of investments in shopping centres right across the country, but they resulted in a £50 million bill, or deficit, for its locality. It is not the only local authority to have done that, up and down the country.

How will the Department, working with combined authorities, ensure that the check and balance is there as devolution expands rapidly—I hope—right across England? Is there the scrutiny to ensure that the taxpayer gets maximum bang for their buck, so to speak, and the assurance that strong checks and balances are in place and investments are sound? As I say, I do not expect an immediate answer, but I would like some correspondence from the Minister and his Department.

It is a pleasure to speak under your chairmanship, Mr Pritchard. I was not expecting to speak in this debate—it is the first time that I have spoken in a Delegated Legislation Committee in my time in the House—but the shadow spokesman, the hon. Member for Weaver Vale, made a very valid point about what checks and balances are in place for public bodies that are borrowing, or in effect going into debt, to invest.

The most recent example of that going very badly wrong was Croydon Council, with its borrowing to invest in the Westgate shopping centre. I believe that the council had, in effect, to declare itself bankrupt and insolvent because of that error. I will be grateful for clarification of what monitoring and checks are being put in place by the Government to ensure that local authorities are monitored properly in their use of the money that they are borrowing.

I have a second question and point of clarification. In such situations, under the 2003 Act referred to in the draft regulations some local authorities have set up companies or other arm’s length organisations to manage the money that they borrow. Auditing transparency is much more challenging in such circumstances. I would be grateful to understand how the Government intend to ensure proper transparency of accounts, as that lack of transparency led to the problems in Croydon. Will the Minister outline the answers to my questions in written correspondence, if he is unable to do so today?

It is a great pleasure to serve under your chairmanship, Mr Pritchard.

Like my hon. Friend the Member for Central Suffolk and North Ipswich, who is my parliamentary neighbour, I was struck by the comments of the shadow Minister, the hon. Member for Weaver Vale. It is now 50 years since Tony Crosland, a Labour Environment Secretary—as it was in those days, but the position covered local government—used the famous words, “the party is over” in relation to local government borrowing.

The regulations provide for an extension of borrowing powers by local government. As has been said, a variety of councils from across the country undertook investments that they thought were sound. In my constituency, a neighbouring council bought a golf club, which it was pleased by and thought was excellent; I was told that it was going to produce a 7.5% return. I may have commented in the local media at the time that councils owning golf clubs was not necessarily what council tax payers expected. I do not think that anybody assumed that a Government of the future would at some point make the playing of golf a criminal act, but that is of course exactly what happened.

Colleagues’ question about what kind of scrutiny is in place is a first order question, and I hope that the Minister will take it to heart and undertake to write to Committee members with more detail than we have heard today about the scrutiny measures that will be in place.

Section 1 of the Localism Act 2011 is entitled,

“Local authority’s general power of competence”,

and subsection (1) states:

“A local authority has power to do anything that individuals generally may do.”

Section 1 (4) reads:

“Where subsection (1) confers power on the authority to do something, it confers power (subject to sections 2 to 4) to do it in any way whatever, including…power to do it anywhere in the United Kingdom or elsewhere…power to do it for a commercial purpose or otherwise for a charge, or without charge, and…power to do it for, or otherwise than for, the benefit of the authority, its area or persons resident or present in its area.”

There are therefore already very wide powers.

I was particularly interested that the Minister said that the extra powers will apply not only to the existing combined authority, but to the bespoke deals available locally. Will he confirm or refute—now or later in writing—whether the regulations go beyond the bespoke powers of the combined authority and extend to the broad powers in section 1 of the Localism Act 2011 to which I referred? Although we all want, at least on paper and in theory, for local government to be accountable to local citizens, we have seen this process go wrong repeatedly in the past, and the framework—the failure regime—that the Government put in place when the extra powers become law will be very important.

I thank members of the Committee for their contributions. They are right to raise those questions. We have seen examples where things have gone terribly wrong and, of course, it is people’s money that is put at risk. Hon. Members have asked me specific questions. With respect, I will write to them with more detail and will now outline how the prudential borrowing process works.

Combined authorities are subject to the regime provided for in the 2003 Act, just as local authorities are. The underlying principle of the regime is that authorities can raise finance for capital expenditure when they can afford to service the debt without Government support. The key feature of prudential borrowing is that authorities are under a broad duty to determine and keep under review the amount that they can afford to borrow.

Regulations further specify that authorities must have regard to the practical rules for deciding whether borrowing is affordable, as laid down by the “Prudential Code for Capital Finance in Local Authorities” issued by the Chartered Institute of Public Finance and Accountancy. Each authority sets its own prudential limit in accordance with the rules, subject to the scrutiny of external auditors. Authorities are required to balance their revenue budgets and not finance long-term revenue expenditure by borrowing. The Government are aware that some local authorities have taken excessive risk with taxpayers’ funds by investing primarily for profit, and pursuing novel and risky investments.

On 28 July 2021, the Government published the policy paper “Local authority capital finance framework: planned improvements”, which set out our plans to strengthen the capital system to prevent excessive risk.

I am listening carefully to the Minister’s explanation and his answers to various Members. I appreciate that the regulations are limited in scope to areas in England that have an elected Mayor, but will he elucidate in relation to investments? The hon. Member for South Norfolk mentioned a golf course, but in my experience most local authorities have been selling off assets. When I was a member of the local authority, we had a huge caravan park, which we were compelled to sell off. I am aware that Mayor Ben Houchen bought an airport that is losing considerable sums of money. The Minister is saying that it is down to the elected Mayor and the combined authority to determine what is prudential and what is in the public interest, so would the measures cover such cases?

I will speak to the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for Harborough (Neil O’Brien) —the Minister responsible for this area—to highlight the point made by the hon. Member for Easington. My understanding is that such matters are subject to external auditors, but I will happily give him a more detailed answer in writing.

Question put and agreed to.