The Committee sets out a series of recommendations in its Seventh Report of 2015-2016, Devolving responsibilities to cities in England: Wave 1 City Deals.
It follows a PAC inquiry examining aspects of the first wave of City Deals, signed by the Government in 2012 with eight of the largest cities outside London: Bristol, Birmingham, Manchester, Leeds, Liverpool, Newcastle, Nottingham and Sheffield. These are the first in a line of deals designed to give cities the powers and tools they need to drive economic growth. In 2013 and 2014, the Government announced a second wave of City Deals with 18 more places, and a devolution deal with Greater Manchester.
The PAC’s Report, published 11 November 2015, highlights concerns over who is accountable for public funds devolved through City Deals. It cautions that successful devolution through City Deals does not mean it is the best model for wider devolution, particularly when devolving responsibility for public services. The PAC also points to a lack of monitoring and evaluation in the first wave of deals, making it difficult to assess their overall effectiveness.
Meg Hillier MP, Chair of the PAC, said:
"Devolving power and responsibilities carries the risk of weakened accountability. The fact that the Government cannot adequately explain where responsibility lies for the success or failure of City Deal programmes should therefore sound an alarm.
It is also disappointing that there is no effective mechanism for comparing results in different cities, nor to scrutinise the knock-on effects projects in one area might have elsewhere. Taxpayers and indeed the Government are unable to assess precisely the impact of what has been delivered through the Deals so far. This becomes particularly significant if the perceived success of individual City Deal programmes is cited by Government as evidence its overall approach to devolution is working and does not require improvement.
Wider devolution deals, such as that agreed with Manchester, will see cities and regions take on increasing responsibility for providing public services. There is considerable scope for tension between local government, required to deliver and maintain services within a devolved budget, and central government which provides funding.
When things go wrong, it must be clear who will be held to account. Taxpayers must understand who is spending their money, how that money is allocated, and where responsibility lies if the system fails to deliver good value."
City Deals are a new way of working between central and local government. They have provided local places with the opportunity to set out their own growth priorities and present them directly to the Government. In return, the Government allocated to devolving responsibility for funding and delivery of specific programmes.
While some individual programmes in the deals have shown early signs of success, it is too early to assess the overall impact that City Deals could have on local growth. The Department for Communities and Local Government (the Department) accepts that the failure to put in place monitoring and evaluation arrangements at the start of City Deals makes it significantly harder to assess progress and know which programmes will have the biggest impact on growth.
Clarity needed on devolved funding
As the Government has set out its ambition to continue devolving responsibility for local growth to local places, the Government needs to be clear about how it determines the funding to be devolved to deliver services locally. The Department must develop a consistent approach to measuring impact alongside a more robust assessment of the capacity of local areas to implement and run devolved programmes.
We also urge the Department to work with local areas to strengthen local scrutiny and accountability arrangements and to ensure public engagement both in the negotiation and implementation of future devolved initiatives.
In 2012, the Government signed City Deals with eight of the largest cities outside of London. Known as 'Wave 1', these are the first in a line of government deals designed to give cities the powers and tools they need to drive economic growth. The deals were therefore designed to be individual to each area, with each deal made up of separate programmes covering a range of policies such as transport, housing and skills.
The Government has committed up to £2.3 billion to the 40 programmes included in deals, mostly in the form of capital funding to enable local authorities to fund infrastructure investments such as buildings and roads.
Manchester gains £6 billion in funding
In 2013 and 2014, the Government announced a second wave of City Deals with 18 more places, and a devolution deal with Greater Manchester. In February 2015, the government announced that Greater Manchester would gain more devolved control of £6 billion in local healthcare funding.
The Department for Communities and Local Government (the Department) holds policy responsibility for the deals, but a further eight government departments play a significant role by providing local areas with funding for specific programmes within the deals or support in implementing their deals.
Summary of conclusions and recommendations
Impact of city deals
The first wave of City Deals show some signs of early success, but they are not necessarily the most appropriate model for wider devolution. It is too early to know the overall impact of City Deals, but some of the individual programmes within the deals have shown signs of early progress. For example: in Sheffield a skills programme has created 1,600 apprenticeships and raised the skills of 1,300 people; in Birmingham the Institute of Translational Medicine, to accelerate life science research, has attracted private sector investment. Cities have reported that they were able to explain their local growth priorities directly to Government, which in return presented them with more devolved funding and powers. While the City Deals process may be seen as ‘practising devolution’, we are conscious that the deals have focused on devolution of funding for capital projects and discrete programmes not public services. The lessons learned from the City Deals process are valuable, but we do not believe that either capital projects or individual programmes are necessarily relevant to the devolution of public services, which has featured in subsequent devolution deals.
Recommendations: The Department should actively share the learning and good practice it has gained through City Deals with public bodies involved in the potential devolution of public services, such as NHS England and the Department of Health. It should make a clear statement about how it will determine funding levels for devolved responsibilities.
The Department has not made clear who is accountable for public funds that have been devolved through City Deals. The Department’s Permanent Secretary is accountable for City Deals overall, but the Department cannot explain clearly and simply whether responsibility for the outcomes of individual City Deal programmes rests with local or central government. We stress the importance of the taxpayer’s ability to know who to hold to account and to know how to actively participate in the design of devolution policy. The unelected LEPs play a big role in planning but the financial risk of failure lies with council tax payers locally. This disconnect between decisions and who pays is a concern.
Recommendation: Given the increasing pace of devolution, the Department should work with local areas to ensure there are effective and well-resourced local scrutiny arrangements and accountability systems to make certain that funding is well spent so the Department and local taxpayers have a clear understanding about how this money is spent. This is particularly important for devolved healthcare spending.
The Department’s lack of monitoring and evaluation in the deals makes it difficult to assess their overall effectiveness. The Department did not include a consistent definition for common outcome measures with cities. Therefore, the claims for 25,000 jobs and 10,000 apprenticeships created so far are not based on consistent measurement and are of limited use when trying to understand what has actually been delivered. Furthermore, the Department is unable to distinguish whether any of the reported figures are new jobs, or whether they have moved from one economic centre to another as a result of these policy interventions.
Recommendation: The Department must agree a common approach to measuring and evaluating the outcomes of growth programmes, including job creation, with other government departments and local areas, to ensure one geographical area is not ‘growing’ at the expense of another.
Management of devolved funding
The Department lacks certainty over whether there is enough capacity locally to manage devolved funding effectively and sustainably. The Government has committed £2.3 billion to the first wave of City Deals. Of the total, the majority of funding is for capital investment, with only £106 million in revenue funding. The Department relies on local areas pooling resources to manage the deals, but we are unconvinced that the approach it has taken to assessing whether local areas have sufficient and sustainable capacity to manage is adequately evidence-based.
Recommendation: The department must develop a more evidence based approach to assessing whether local areas have sufficient and sustainable resources to deliver the City Deals in the wider context of Government funding restrictions.
Department’s Cities and Local Growth Unit's capacity
Cities valued the role of the Department’s Cities and Local Growth Unit in providing a single, coherent access point in Government but the Unit’s capacity is limited. As the number of City Deals and devolution deals increase, the Unit’s capacity will come under increasing stress. We therefore welcome the Department’s reassurance that it keeps under review the Unit’s capacity, to ensure it can manage new pressures as they arise. There is a risk that the potential to learn valuable lessons for further devolved initiatives is undermined by poor record keeping, given some departments’ inability to explain the original intentions of particular programmes in the deals. The Department acknowledged that this suggested sub-standard record keeping within the government departments involved in City Deals.
Recommendation: The Department should maintain its approach of having a single point of contact with local places, and be responsive to local areas that have less experience in managing more devolved funding. It must also work with other departments to ensure a step change in record keeping. Departments must maintain proper records on initial objectives and lessons learned.