Finance innovation ‘key to making devolution a success’

10 Mar 16

Innovations in local finance, collaboration and a reshaping of local governance are among the key ingredients required to make devolution work, according to EY.

In a report released today, EY outlines the challenges ahead for both local and central government as they look to capitalise on the opportunities for the economy and public services that devolution presents.

EY said councils must work to define clear geographical and economic boundaries and understanding of the dynamics of the local area and the distribution of power, which is complicated in regions where there are perceived overlaps.

While cities like Manchester are generally accepted as the economic centre of their region, in areas such as West Yorkshire, economic power is more dispersed, for example between Leeds and Bradford. EY said the lack of settled understanding could hinder decision making and even derail a major new deal unless tensions are overcome.

It is then important to build local partnerships based on trust, understanding and a shared vision for development, which will be long-lasting once the original rush to formulate devolution bids subsides.

“The importance of this work must not be underestimated,” the report said. “If politicians in particular do not lay that groundwork, some argue that there may be ‘a few shotgun weddings and divorces’”.

Similarly, EY said city regions would perform better when the broad range of local interests are aligned around the needs of the place.

The interests of central government, local authorities, other public sector organisations, private businesses, universities and civil society need to be reconciled around a common vision and their resources aligned towards it.

“The relationship between local government and its business communities in particular must be strong, cooperative and productive if regions are to prosper,” it added.

“Trust, credibility and compromise” between local and central government will also be needed to provide a basis for local leaders to negotiate with Whitehall on behalf of their regions, the report said.

It noted that regions should recognise that devolution is a “long game” that takes time, and accept that their initial deal is often a stepping stone for something more coherent and deep-rooted later.

Local authorities’ long-term plans also need to be more rooted in evidence, with a greater use of modelling, data and analysis to inform policy decisions and outcome targets.

As well as a broader tax base, EY said more innovative funding mechanisms will be needed if city regions are to become financially self-sustaining in the context of cut government grants.

Cities will need to share more in both risk and reward, reinvest proceeds locally, and develop new financial management tools to help them control costs, prioritise projects, manage performance and identify alternative sources of income.

It noted that moving to a finance system based on local autonomy will not be quick or easy, and that strong governance frameworks, clear accountability and robust arrangements for scrutinising spending decisions will be required.

Combined authorities will also have to ensure they have the correct skills and capacity to manage devolution, it added.

Did you enjoy this article?