Is Devolution strengthening Local Government? Or not?

Is Devolution strengthening Local Government? Or not?

Pauline Jas, Barbara Allen and Alison Gardner

The previous government, the Tory-Lib Dem coalition, frequently talked about the need for the state to reduce its involvement in the provision of services so that local communities would be stimulated to become more active. The assumption is that comprehensive state provision forms a disincentive to people’s own initiatives, which are ‘crowded out’ by an overbearing state. The current Conservative government is emphasising devolution of power to local areas. At its recent party conference the Chancellor announced ‘a major transfer of power from central to local government’, allowing councils to keep the £26bn raised in business rates.

But is all this the big empowering move the headlines suggest? Or is this a small sweetener after the bitter pills of austerity? Although the Summer Budget 2015 did not contain any additional cuts to local authority budgets, unprotected departments (including the Department for Communities and Local Government have been told to plan for 25-40% cuts. This is in addition to cuts already implemented: the government financial watchdog estimates that the total reduction in funding to local councils between 2010 and 2016 is 37%. Not all councils have been affected equally and impacts are highly localised, but those who rely more on government grants, i.e. the poorer areas, have been hit hardest. Councils have tried to shield social care services, but there have been falls in the volume of social care. Spending on non-statutory functions such as youth, community and leisure services has also been heavily impacted.

We consider the combined pressures of devolution and austerity. Based on preliminary findings of two projects we discuss whether local government, rather than the ambiguous and undefined ‘local areas’ benefits from the latest announcements, and what novel ways of funding services councils are investigating, and how they impact on service delivery.

The way the previous and current government keep promoting their aims to reduce the remit of the state, belies that the days in which the state was the main service provider have long gone. Through various ways of outsourcing to for-profit businesses and partnership working with not-for-profit voluntary and community organisations (third sector organisations), the UK operates a mixed economy of welfare. Despite the array of organisations involved in service delivery, the responsibility for funding and making sure services are available frequently rests with local government.

Third sector organisations have also been hit hard by the budget cuts, and often struggle to compete for contracts with private sector businesses. For example, contracts that are offered on a pay-by-results (PbR) basis demand the service provider to deliver the services first, and be paid once they can show they have achieved the required results. This requires a level of cash-reserves that many of these organisations simply do not have. Third sector organisations often provide services aimed at the most vulnerable in society, or those for whom results are most difficult to achieve, which puts them in an even more precarious position. As commissioners of services it is in the interest of local authorities to support the continued existence of third sector organisations, especially those that have ‘niche’ skills. Therefore local councils have been looking for alternative ways to fund the delivery of services.

One of these alternatives is social impact bonds. Social investment, or impact investment, is aimed at funding social improvement whilst preserving capital or making some level financial return on its capital. Social impact bonds (SIBs) are used to finance PbR contracts. The Social investor in a SIB pays the service delivery costs upfront, allowing the third sector organisation to take on the contract. The repayment to the investor is covered by the money received for the client results achieved, if the agreed results are not achieved, the investor loses out.

Social investment involves three key players, each with distinct perspectives. The service provider’s interest is to meet client needs in a sustainable way. The social investor needs confidence in the social outcomes and therefore of the financial return. The commissioner acts as intermediate for the provider and the investor. The commissioner therefore aims to give the investor the confidence that the provider will meet the contracted outcomes so that the investor has their investment repaid. At the same time, the commissioner is looking for value for money and whether the service will deliver savings, as the investors must be paid with interest over a period of time based on outcomes. In addition to concerns over the sustainability of the funding, the extent to which they are free to respond to changing needs of service users is important to local authorities.

In addition to the cash-flow problem inherent in PbR contracts, there is the issue of what constitutes ‘a result’. When a service has obvious and clearly visible outcomes, for example the numbers of wheelie bins emptied in an area, it is feasible to design a contract based on specified targets. When services deal with the more complex social problems in society, targets become much less clear. For example, in dealing with long-term unemployment, getting someone into a temporary seasonal job, or onto a zero-hours contract may superficially look like a result, but is unlikely to solve the problem in the longer term. On the other hand, when a long-term unemployed person has their confidence boosted to the extent that they are now ready to apply for jobs, this can be considered a great step forward. But this progress is not easily expressed in terms of monetary value.

Services that focus on early intervention, i.e. those that aim to prevent potential problems from developing, or emerging problems from getting worse, are by their nature difficult to express in targets and contracts. SIBs can play a role in these types of services and the role of the local authority as commissioner of services is crucial in these cases. Years of partnership working and building connections with local communities has given them the knowledge and understanding of needs and issues in their constituencies. The trade-off between state and society does not work, and local government needs the devolved power and funds to create the conditions under which civil society can flourish.

Local authorities are exploring many other means of sustaining services, including novel forms income generation, co-production, and greater use of technology, as well as more traditional approaches like efficiencies and the strategic use of reserves. However, under the incoming Conservative government much emphasis has been placed on devolution as a means of both increasing service effectiveness and pushing power closer to local people.

Under the Cities and Local Government Devolution Bill, the government is inviting councils to submit proposals to form what they call ‘combined authorities’. These administrative structures can initially bid for powers to increase investment in areas such as transport, economic development, and developing skills. Individual councils want to reassure their constituents that joining a combined authority does not mean they become ‘supercouncils’ and they retain control over the services they deliver to their users. At the same time, there is an option to combine other functions in future. Devolution deals are based on negotiations between central government and each combined authority. One condition set by government for the greatest range of devolved powers is to accept an elected mayor to lead this new layer of administration.

The process of doing separate deals does not show an overall change of power differentials between central and local government. Rather it undermines the collective character of what used to be called the local government family. In 2012 most of the major cities in England rejected the government initiative to introduce elected mayors. Now elected mayors are brought in as part and parcel of a policy that most councils can ill afford to reject, with the financial constraints that they find themselves under. Further pressure is added to accept elected mayors for individual councils if they want to gain the right to increase their local business rates.

The Conservative government in the UK is making headlines with announcements of no further cuts to local government funding and even a promise of addition funds via business rates. Following onto years of brutal cutting of funds, these promises hardly constitute a lessening of the financial constraints local authorities are under. What is touted as devolution is in practice a way of drawing powers further away from local councils, and into a sub-regional additional administrative layer. With the addition of elected mayors, what local government is set to get is less agency and therefore less room to provide the services that their communities need and have elected them to deliver.


Pauline Jas is a lecturer in Public Policy at the University of Nottingham with an interest in local government and the performance of public sector organisations. Barbara Allen is Assistant Professor of Public Policy at the University of Nottingham with an interest in public service commissioning and contracting. Alison Gardner is PhD Researcher in Politics and International Relations at the University of Nottingham with an interest in local government and democracy

Image: Nottingham Council House. © Image & Design Ian Halsey MMXII.