Happy New Financial Year
Five areas covering over half of the North will soon have integrated settlements
April marks the start of a new financial year - and in 2026-27 four new northern mayoral authorities are being given ‘integrated settlements’. 1
This means Liverpool City Region, the North East, South Yorkshire and West Yorkshire are joining Greater Manchester in this illustrious category of ‘established’ tier mayoral authorities. Over 10 million people equivalent to 65% of the population of the North will be covered by mayors with the highest level of powers.
This is great news as it gives place a bit more flexibility over spending than they had before. The total amount of funding for each area over the Spending Review period is as follows. 2
This works out at over £9bn total over the coming years. And in each of these areas it is roughly £250 per person per year in 2028/29. In fact, if you add in the £733m in the West Midlands and the £541m from Greater London then the total funding in 2028/29 controlled by mayors in integrated settlements will be almost £4bn.3 To put this in context, this is larger than the Department for Business and Trade. And all funding with more flexibility to be allocated to the most pressing issues in an area.
However, there is not full flexibility. Each area has been allocated money to one of six ‘themes’.4 Within each theme, the places technically have flexibility to allocate funding. There are also limited flexibilities to:
Move up to 10% of the annual funding in a theme into another theme - from say skills to transport if they think that is where they will get the best results. There is no limit on the amount that can be moved out of the ‘economic development and regeneration’ theme into other themes.
Move funding to future years
Move up to 10% of capital funding within each theme to revenue/resource, and 100% of revenue/resource funding within each theme to capital.
But unfortunately, these are not the only controls.
Each area must also agree an ‘outcomes framework’ which sets out how the place will use the funds to improve different measures in their area. For example, for the 2025-26 funding, Greater Manchester had a target to increase the modal share for public transport from 5.7% to 5.9%.5
For large transport schemes, there is also still a ‘business case threshold’. Any project with a lifetime cost over £200m must still be approved by the Department for Transport. Such processes can add months if not years to a project delivery timeline. I have written before in ‘Let Tracy Build’ on how we should lift this requirement to let places get on with building, amongst other measures.
Together such arrangements mean that departments are still involved in many of the decisions being taken by places, with the impulse to exert control which that brings.
Integrated settlements are therefore a good start. But we need to go further. The key barrier to further devolution of funding is that the accountability for value for money still sits with civil servants in Whitehall.
As the framework sets out, the MHCLG Permanent Secretary (or ‘Accounting Officer’ in the jargon) will “will assume responsibility for the core accountability process to Parliament”.6 There will also be subsidiary roles for the Chief Executives of Mayoral Strategic Authorities as well as the Permanent Secretaries in departments where the funding is coming from. But the Public Accounts Committee in the House of Commons can still haul them all in.
Until this centralised accountability link is broken - as has been done in Scotland, Wales and Northern Ireland - places will not have the flexibility they need to get on with delivering. I think two steps are needed here.
Firstly, a beefing up of the accountability arrangements in places, supplemented by primary legislation to designate Chief Executives in Mayoral Strategic Authorities as the relevant ‘accounting officer’. This follows the trajectory we have seen in the Devolved Administrations. One example of this might be creating ‘Local Public Accounts Committees’ in each area.
Secondly, building on the first step, money can then be allocated via a block grant to mayors instead of using the complicated departmental arrangements found in the integrated settlements. Ultimately, this means a ‘Barnett Formula for Mayors’ arrangement.
There is often a fundamental misunderstanding about how the Barnett formula works. The formula simply applies the population weighted change in UK level spending to work out the change in the devolved administrations, removing the need for formulas in each department. People sometimes argue that different devolved administrations are ‘over’ or ‘under’ funded - this is the result of the original baseline set for those places and mostly consistent application of the Barnett Formula since - not a result of the Barnett Formula itself.
For example, the government could use the above integrated settlements as a baseline for spending - then any changes the UK government makes to similar spending elsewhere in the country would be applied.
One issue here is that when we have 100% devolution of a spending area, there would be no UK government spending to anchor it to. The only area where this has been the case really is in local government spending - and this has faced severe cuts from central government. So the use of the Barnett Formula can only be an interim step, unless we are to see similarly poor incentives.
So as we move to greater devolution across the country, we will need to think about the spending powers of each place more like other countries do. What we need is a funding system which takes account of need in different places, whilst retaining the incentives and ability for places to do things for themselves. This is something I plan to look into further. Thoughts very welcome on what this might look like - or countries we should learn most from!
Overall, the expansion of integrated settlements is very welcome. It will give a total of five places across the North genuine powers and certainty to plan for their residents. But this must just be a start. Over time, greater accountability, ‘Barnett for Mayors’ and a fairer, more rational system of subnational finance will need to be brought in if we’re going to genuinely put power into places.
For those who have been asking - still waiting for baby to arrive before off on parental leave. So still mostly on hiatus for a few weeks. And thanks to everyone who has completed the reader survey I shared last time. A couple of people left comments saying they would like to discuss things further but I should have pointed out that the survey, as far as I am aware, is anonymous so please get in touch another way!
The lower London figure may look surprising - but this is because London’s transport settlement is being dealt with outside the integrated settlement structures.
These are as follows and also mostly align with the ‘areas of competence’ mayors are being given in the English Devolution Bill: Economic development and regeneration; Transport and local infrastructure; Adult skills and Employment support; Housing and strategic planning; Environment and climate change; Health, wellbeing and public service reform. There are seven areas of competence - the only one which appears to have no funding attached is ‘public safety’ - presumably as this is linked to the ongoing changes to police and fire and rescue services.
I really like the clarity of thinking here on the need to firm up the financial devolution arrangements with a mayoral Bartlett formula.
In parallel there’s a debate to be had on the freeing up of mayors and non-mayoral areas to raise their own income bypassing the centre. VAT retention above a baseline, local taxes anything to decentralise and permit areas to reinvest without needing approval from Whitehall.