5

Chapter summary

Regional assemblies will be funded primarily by central government grant.
Assemblies will have complete freedom to spend their grant as they judge best, subject to their helping to achieve in their region certain specific targets agreed with central government. Some additional funds will be available if an assembly meets or exceeds these targets.
Assemblies will be able to raise additional funds from a precept on the council tax. Their precept will be expected to make a small contribution to the direct running costs of an assembly. But costs to council tax-payers will be subject to a capping regime to prevent excessive increases.
Assemblies will have no power to alter non-domestic business rates.
Regional assemblies will have powers to borrow money, subject to certain limits.

5.1 Elected regional assemblies will be responsible for significant budgets, as well as having influence over the expenditure of a range of other public bodies (see paragraphs 4.16 and 4.17). Based on figures for 2001/02, and including European programmes, an elected assembly in the North East would be responsible for around £350 million a year (see Box 5.1), and an assembly in the North West would be responsible for around £730 million.

5.2 We estimate that a regional assembly in the North East would have an important say, through its influencing role as summarised in paragraph 4.17, on more than £500 million of public expenditure (based on figures for 2001/02). An assembly in the North West would have a say on around £1.3 billion. Coupled with its block grant, this would mean that an assembly in the North East would take, or be involved in, decisions on around £0.9 billion of public expenditure out of a total of £7.2 billion, excluding social security payments; the comparable figure for the North West is about £2.1 billion out of £18.6 billion.

5.3 The Government wants to give elected regional assemblies the maximum flexibility over how they spend the money allocated to them. It would constrain an assembly unduly if grants were to be ear-marked by central government for specific purposes. We therefore propose to give regional assemblies a single block grant with freedom to spend money as they judge best. In return, we will expect each assembly to help achieve in their region a small number – perhaps six to ten – of targets agreed with the Government. These targets will be relevant to an assembly’s responsibilities and will leave it open to the assembly to establish how to achieve them. Some additional money will be available to reward elected assemblies which achieve or exceed the targets. Targets and rewards will be agreed between central government and each assembly, along the lines of existing local public service agreements.

5.4 The first elected regional assembly will not be established for some years and even then there may only be one in place initially. The Government does not therefore believe that any fundamental change is required, at least in the medium term, to the way in which funds are allocated between the English regions once the first elected regional assembly has been established. We believe that fairness and consistency of treatment between the English regions can be most simply demonstrated if the level of resources for the region(s) with an assembly is determined on broadly the same basis as for other English regions.

5.5 Regional allocations of the main programmes which will go to an elected assembly are presently, or will soon be, formula-based. These allocation mechanisms are intended to be objective and fair. The smaller programmes are more often bid-based or discretionary, although fairness between regions is again an important factor in determining these allocations. In future, where a region has an elected assembly, its level of funding will continue to be determined in the same way. The only significant difference is the additional money available to reward regional assemblies which achieve or exceed the targets agreed with central government. This money will be genuinely additional and will not be taken from the money available to regions without an elected assembly. We also expect an elected regional assembly to make better use of available funds because, for example, it will be better placed to consider the appropriate balance between competing priorities.

Box 5.1: **Expenditure in 2001/02 on programmes for which a North East elected regional assembly would take responsibility**
	Expenditure (£ million)
National programmes
Regional Development Agency	173
Housing capital – local authorities	48
Housing capital – registered social landlords	23
Rail Passenger Partnership	1
Rural partnership	2
Arts, sport and tourism	12
English Heritage	1

Total national programmes	260

European programmes	89
Total	349

5.6 Besides the programme expenditure for which they will be responsible, regional assemblies will receive a general grant to meet most of their direct running costs. But we believe that people in any region with an elected assembly should make some contribution towards its running costs, whether or not an assembly raises additional money in the region for programme expenditure. The level of general grant will be set to take account of this contribution. We also believe that an assembly should be able to raise some extra money within the region if it believes that this is desirable – for example, to increase funding for economic development – and likely to be supported by the region’s voters.

5.7 The simplest means for an elected assembly to raise money from people within its region is a precept on the council tax. This is the means by which the Greater London Authority can raise additional funds and by which various other public bodies, such as county councils and police authorities, are partly funded. An assembly will set the level of the precept, but the money will be collected by councils in the region as part of the existing arrangements for collecting council tax. As is the case for London, an assembly will not be able to vary non-domestic rates or affect business taxes.

5.8 In setting the level of central government grant, we will expect council tax-payers in any region with an elected assembly to contribute the equivalent of around five pence per week for a Band D council tax-payer.

5.9 An elected assembly will also be allowed to set a higher precept within the region to fund additional spending if it considered this desirable. Regional assemblies will be accountable to their tax-payers and voters for the precept levels that they set and, as with council tax levels in local government, we would be reluctant to intervene in these decisions by placing a limit on an assembly’s precept. However, we need to proceed cautiously, as it is council tax-payers who will bear the risk of high increases in the precept and they may be concerned if regional assemblies are given a completely unrestricted precepting power. We therefore propose initially to limit assembly precepts through arrangements comparable to the existing local authority capping regime. But we will keep this position under review as, over the next few years, we consider making further progress towards our ideal goal of ending the local government capping regime.

5.10 Regional assemblies’ capital expenditure will generally be funded by central government grant. But there may be circumstances in which an assembly wishes to borrow to raise money for capital expenditure in addition to that provided by central government. We propose to give regional assemblies borrowing powers to fund capital expenditure where they can afford to finance it from their revenue budgets. We also propose to give them temporary borrowing powers for cash management purposes. Both sets of powers will supersede the existing borrowing powers of an assembly’s Regional Development Agency. Assemblies could borrow from the Public Works Loans Board or from commercial lenders.

5.11 In principle, we believe that elected assemblies should decide on their own levels of capital spending to be supported by borrowing and should be accountable to voters for their decisions, subject to the levels of borrowing being prudent. We are therefore minded to apply to regional assemblies the local authority prudential regime that we are proposing for local government, including reserve powers to set lower prudential limits in certain circumstances (as described in Strong Local Leadership – Quality Public Services: Part II, chapter 4). At least initially, we envisage setting rather tighter limits than a new assembly, with no existing debt, would be subject to under a prudential regime. Such limits would be set to protect people in the region from excessive borrowing which could have long-term implications for council tax. The detail of these arrangements will be finalised in the light of experience in developing and implementing the local authority prudential regime. Before being finalised, any limits would be discussed with the regional assemblies concerned at the time.

5.12 The Government wants elected regional assemblies to be efficient bodies that add real value. For example:

Further information on the constitution of elected assemblies and the way in which they will work is set out in chapter 7.

5.13 A regional assembly will, however, have some running costs, which we estimate at around £25 million a year. Around £5 million of this sum represents the cost of staff who will transfer from existing public sector bodies and will work on specific assembly policy functions. The remainder includes members’ and officers’ remuneration, accommodation, general office expenses, and provision for future elections. We believe that, over time, these costs will be fully or partly offset by improvements in the efficiency and effectiveness with which assemblies carry out their functions, and other savings. For example, an assembly would cover most of its own additional running costs if, through more effective targeting of resources and efficiency improvements arising from scrutiny by assembly members, it increased value for money from its own programme expenditure by three to five per cent.

5.14 A regional assembly will also be able to influence directly a range of other public sector organisations in the region – such as, for instance, the local learning and skills councils – and to engage in a constructive dialogue with other public bodies and the private sector. (Annex B provides as an example a list of public agencies and other public bodies – ‘quangos’ – active in the North East.) So there is scope for an assembly to make a significant difference by, for instance, encouraging more joined-up working with other public bodies, suggesting changes that would help these other bodies focus more clearly on the region’s priorities, and developing a framework that will facilitate and encourage private investment. We believe that an elected assembly is a public investment that can have a major impact on the region’s productivity and prosperity.

5.15 The assessment of costs makes no allowance for cost savings that would arise from the establishment of a wholly unitary structure of local government in regions with an elected assembly (see chapter 9). We believe that there should be savings in the medium term from such a restructuring, albeit that there will also be up-front transitional costs. It is not practicable to make a more specific estimate of costs and savings in advance of the Boundary Committee making recommendations on the best unitary structure for a region with an elected assembly.

5.16 Of course, one of the main reasons why the Government wants to establish elected regional assemblies is our wish to increase democratic accountability over decisions taken at the regional level. It is clearly not possible to quantify the benefits of greater democracy.

5.17 Chapter 7 sets out information about the constitution and structure of an elected regional assembly. The assembly executive will be responsible for drawing up a proposed budget and presenting it to the full assembly for approval. It will then be for the full assembly to approve the budget, to amend it or to reject it and ask the executive to submit a significantly different budget. The Government does not propose to specify in detail the procedures an assembly must follow in order to set a budget, although it does intend to put in place minimum requirements as to the timetable, publicity and default arrangements that must apply. Whilst regional assemblies will raise a precept on the council tax, they will not be responsible for sending bills to council tax-payers. The minimum requirements we will specify will therefore be designed primarily to ensure that an assembly’s budget-setting processes fit in with the timetable of the local authorities which will send out council tax bills.