Contacts: Stuart Jarvis, ext 6126 email: [email protected]

Ejner Knudsen, ext 7430 email: [email protected]

1. Summary

1.1 On 8 December 2004 HM Treasury, in collaboration with the Department for Transport (DfT), the Office of the Deputy Prime Minister (ODPM) and the Department for Trade and Industry, published proposals to improve decision making by establishing clearer assumptions on funding for regional transport, housing and economic development. This report summarises the proposals and considers the extent to which they will improve decision making by allowing the wider regional impacts and relationships between decisions in related policy areas to be taken into account.

2. Background

2.1 In July 2004 Government announced that it was examining new ways to integrate Regional Economic Strategies with regional transport and spatial development strategies within a framework of indicative long-term funding guidelines for each region. The announcement promised consultation on proposals in late 2004 with a view to publishing indicative regional budgets alongside the 2005 Budget.

2.2 The consultation proposals were published on 8 December 2004. The proposals include two major innovations. First, the establishment of regional transport funding allocations and second, the suggestion of longer-term regional resource distribution assumptions to influence allocations in future Spending Reviews. Although Spending Reviews would remain the process for making funding decisions, these clearer funding assumptions are intended to give regions a far stronger base on which to plan and inform resource decisions. Each region would be expected to align its strategies for transport, housing and economic development on the basis of the proposed funding allocation. In return regions would be given greater influence over the outcomes of the Spending Review.

2.3 The first part of the consultation document outlines the basic structure of the proposals. The second part provides details of what the Government proposes to include in the transport, housing and economic funding allocations. An Executive Summary repeats the seven questions that are raised in the document on which views are sought. The full consultation document is attached.

3. Devolving Decision Making

3.1 There are three elements in the Government's proposals for achieving better decision making:

(i) realistic funding assumptions;

(ii) coordinated regional strategies and priorities; and

(iii) enhanced regional input.

3.2 For the first time Government proposes to publish regional transport funding allocations. Regional economic and housing funding allocations are already published. Moreover, recognising that these three areas would benefit from a financial planning regime that looks beyond the current three year Spending Review cycle, the Government proposes to set out new guidance on long-term planning assumptions which would provide a rule for projecting forward the prevailing distribution of resources.

3.3 Government wants to see an improvement in the integration of various regional strategies (eg transport, housing and economic development) based on realistic expectations of likely spending allocations and priorities. No procedures are put forward to achieve this improvement: consultees are being invited to suggest what mechanisms and processes should be put in place to facilitate a better alignment of regional priorities.

3.4 Government is proposing to invite regions to provide advice on regional priorities for transport, housing and economic development in advance of the next Spending Review. Guidance will be provided to regions about the nature of that advice, including the extent of stakeholder involvement in its preparation. A key aspect of the advice will be a sensitivity analysis setting out how plans could respond to a range of funding scenarios.

3.5 Subject to the outcome of the consultation exercise the Government would publish:

(i) funding allocations 2005/06 to 2007/08 for transport, housing and economic development. For transport the allocation would be indicative and may be subject to change;

(ii) longer term planning assumptions to provide the rule for projecting forward the existing distribution of resources beyond 2008; and

(iii) guidance to help regions provide advice to Government.

3.6 Regions would be invited to produce:

(i) advice on the priorities for spending in each of the three funding allocations and the justification for any switches between allocations; and

(ii) a sensitivity analysis indicating how plans could be adapted to a range of higher and lower funding scenarios.

4. Proposed Funding Streams

4.1 For transport the Government's intention is that the regional funding allocation would comprise the capital funding projected on major schemes (more than £5 million) and Highway Agency schemes other than on strategic national and international routes and rail expenditure where it can be particularly related to specific regions. The DfT plans to set the allocation using a formula based on the population in each region.

4.2 The split of mainstream housing funding to regions has, for many years, been based on a needs-based formula. The ODPM will shortly be consulting on the approach to be adopted for 2006/07 and 2007/08 but it is unlikely that there will be any fundamental changes in the approach. The longer term planning allocations will reflect the prevailing allocations: but only as indicative allocations pending future review of the funding formula.

4.3 It is proposed that the budgets of Regional Development Agencies (RDAs) will now form part of the regional funding allocation and long-term funding assumption. RDAs are funded by a single pot allocation based on the regional priorities in their Corporate Plans using a funding formula with takes account of needs and opportunities. Following the 2004 Spending Review, their budgets will grow in line with inflation. The longer term assumption will reflect the current allocations, but again only as indicative amounts pending future reviews of the funding formula.

5. Comments

5.1 The recommendations on transport are not new. They were mentioned in the July 2004 Transport White Paper: `The Future of Transport'. The consultation document does not ask whether this proposal should be adopted. Instead, it asks which principles should be most important in developing a formula to determine distributions of transport funding allocations. One of the unwritten objectives behind the formula may be to distance the Government from unpopular decisions about which transport schemes to fund. There appears to be a considerable reduction in the amount of funding available for transport schemes, and the Government may want regional and local bodies to have the responsibility of deciding how best to use a more limited budget.

5.2 However, it is not clear that it would be appropriate to determine the level of transport investment in each region by way of a formula. The major transport schemes to be funded by these regional allocations are inherently difficult to predict. They consist of a relatively small number of relatively expensive schemes. The need for expenditure on these schemes in any given year is not directly related to factors that can be easily measured, such as population. It is likely that any formula would bear little relationship to the need for spending in any region. This could lead to some regions being allocated more than they require in a given year and others receiving far less. It would also lead to all regions receiving average allocations, which may not allow flexibility to fund occasional expensive schemes, such as light rail projects.

5.3 The Government has experienced considerable difficulties in developing a formula for local integrated transport allocations as part of the Local Transport Plan (LTP) process. The DfT has established a working group of local authorities to develop the formula. The Isle of Wight Council was one of the authorities in this group. Despite the input of the group, it has proved difficult to match formulaic allocations to the need to spend on local transport. As a result, the announcement of the formula for the current LTP process has been substantially deferred. Instead of announcing the local transport formula in July 2004 as originally planned, it has been delayed to "before December 2005". A formula for regional allocations is likely to be more complicated as it will deal with the unpredictability of a smaller number of much more expensive schemes.

5.4 Other than the proposal to include Market Renewal Pathfinder funding in the regional allocations, the process for funding housing is no different to current practice. The proposal to give regional assemblies the responsibility for producing regional housing strategies was considered by Cabinet on 9 November 2004. The Government's response to the consultation on the proposal is awaited.

5.5 The proposal to include the funding of regional development agencies as part of the regional allocation is to enable regions to align strategies more closely. The proposal aligns with the suggestion that regions should be able to recommend switching expenditure between the three streams (transport, housing and economic development) in order to prioritise between policy areas. However, the final decision on switching funding would be made by the relevant Secretaries of State as part of the Spending Review.

6. Conclusions

6.1 Investment in social and transport infrastructure by the public sector is needed not only to overcome existing shortcomings and deficiencies but also to ensure that planned future rates of development and change are not hampered by the lack of basic facilities and services. As the majority of this investment reflects local circumstances the concept that these investment decisions should be devolved to the local level is, in principle, sound. The problems with the Government's current proposals arise from the detail: regrettably, by introducing yet another step in the process of allocating funding, failing to provide any confidence in long-term allocations and retaining control of the allocation process the devolution of decision making to accountable local authorities is more apparent than real. The concept of determining regional transport allocations by formula appears to be very difficult to achieve sensibly.

6.2 The consultation document acknowledges the limitation imposed by looking at investment decisions in short-term bundles within discrete headings and with no clear understanding of how one set of decisions may, or may not, impact on another. It also recognises that public sector investment decisions are taken by a variety of institutions over a variety of areas and within unsynchronised budget frameworks. Unfortunately none of these limitations are addressed in the proposals. Rather than look at what structures exist and how their limitations might be overcome, the proposals amount to little more than applying a thin new regional veneer on an increasingly centralist and short-term approach.

6.3 The result are proposals that give little more guidance than currently exists on key areas of investment in transport, housing and economic development and a promise to listen to the voices from the regions each time the Spending Review is undertaken. If Government is prepared to give so little in terms of commitment there can be little surprise if the others involved in planning investment in services and infrastructure are similarly reluctant to commit to the future.

6.4 To secure the development of sustainable communities, long-term commitments are needed to provide the necessary new and/or improved infrastructure. Although transport, housing and economic development are crucial elements of this infrastructure, they are not the only elements. Nevertheless, meaningful proposals to integrate these three important investment streams would be a positive start, particularly if the process involved more than the rather mechanistic approaches to slicing the overall resource cake that is proposed. What is needed from Government is a clear indication of what resources will be made available and the priority that will be attached to maintaining that commitment. Only then will local authorities and other service providers be able to develop their long-term development plans and service delivery strategies with any confidence.

6.5 It is particularly regrettable that the proposals ignore the new plan-making arrangements introduced by the Planning and Compulsory Purchase Act. These new arrangements have been paraded as an exemplar of local stakeholder involvement in decision making; but the final plans needs to be soundly based on commitment to the resources necessary for implementation. Planning for long-term development and change requires more than three year investment programmes and hints about future resources.

6.6 The difficulty of determining a sensible formula for regional transport allocations should not be underestimated. A formula based mainly on population is crude set against the more sophisticated system for allocation of general Government revenue grant. Government should be encouraged to take proper account of other measures of need such as congestion, road safety and the size of the regional economy and reducing regional disparities.

6.7 Every region has a different geography and a population with differing needs. It is to be expected that regions should respond differently to the different transport challenges in their regions. Considerable extra thought needs to be given to this process; and this extra thought should include those who will principally be affected by the outcomes.

6.8 Finally, the consultation proposes seven specific questions. Some of these questions pre-suppose that the proposals are implemented as drafted, others are about processes that will need to be established when the proposals are implemented. Brief responses are set out in the attached appendix.

Recommendations

1. That HM Treasury be informed that the County Council:

(i) acknowledges that regional choices on transport, housing, planning and economic development should not be taken in isolation and that regional institutions have a role in influencing investment decisions at the regional level; but

(ii) regrets the failure of the proposals to address:

(a) the way that local priorities, as determined by local authorities, will be considered in the process;

(b) how the local levels of resources will be determined by the regional agencies or the long-term provision for investment necessary to ensure the development of sustainable communities; and

(iii) is alarmed that the proposals give no certainty over the funding of the essential infrastructure crucial to the development of sustainable communities; and

(iv) is aware of the difficulty of calculating regional transport allocations by way of a formula, and recommends that the Government should establish a working group to consider this issue. Hampshire County Council would be willing to participate in such a working group.

2. That Cabinet endorse the proposed response to the specific consultation question set out in the attached appendix.

9174Rpt/SJ/EK

APPENDIX

Response to the specific questions posed in the consultation