The West Midlands Combined Authority — where does the money come from?

Over the course of the recent Metro Mayor election, a number of people have asked how the West Midlands Combined Authority (WMCA) is funded. It’s a good question, and probably the easiest route to understanding a) what the WMCA is (currently) for and b) how firm the Government’s commitment to devolution is (en bref, not very). It is also — as I have found — not wholly easy to answer, but this is a start.

My favourite (not-pie) chart indicates the provenance of some of the money by virtue of what it will be spent on:

Sigh

When the WMCA was still a glint in the region’s eye, a key turning-point in the above was negotiating the gainshare revenue grant as part of the first devolution deal. This was new money from central Government to help boost and accelerate infrastructure investment, notably around HS2. This element tends to be what people refer to when they speak of the WMCA having a budget of £1bn, which is borrowing enabled by £36.5m per year from the Treasury, over a 30 year period.

This borrowing capability will be released across this investment programme. So while WMCA spending to date has not been driven by borrowing in its first year of being, this will quickly change, as noted under the regular Treasury Management item. Of the £8bn above, approximately £2.2bn will be funded by WMCA debt, across the following projects:

p63 if you want to see the table properly

Intially, legislation relating to Combined Authorities only allowed for the WMCA to borrow for its transport functions. The workaround for this has been for one of the Constituent authorities to do the borrowing on behalf of the WMCA (more on which shortly), but this has been addressed by the 2016 Order.

In addition to borrowing, the above also incorporates existing, committed capital investment from various sources, including from the Government. For example, Department for Transport contributed £97m for the Metro extension to Adderley Street.

The Members

Some of the money comes from the Councils and Local Enterprise Partnerships (LEPs) themselves.

The Collective Investment Fund is one such example. Six of the seven Constituent Authorities have each invested £10m (£60m total, to be paid back in ten years) into this fund, which is intended to unlock private sector investment into commercial land and property developments. This fund is administered by Finance Birmingham, governed by the aforementioned Investment Board (along with the Land Remediation Fund, more of which later), and underpinned by the ‘Collective Investment Fund Advisory Working Group’. Any borrowing costs are to be met by Birmingham City Council, until such time as the WMCA is able to borrow for non-Transport uses.

Some collective funding has its roots in the Integrated Transport Authority, which the WMCA absorbed last year — so, for example, the levy raised £124.8m in 2016/17, across the seven Constituent Authorities (amount paid is based on population):

  • Birmingham — £49m;
  • Coventry — £15m;
  • Dudley — £14m;
  • Sandwell — £14m;
  • Solihull — £9.3m;
  • Walsall — £12.2m;
  • Wolverhampton — £11.2m.

It is also the case that the Housing element will be substantially funded from local sources, partly from Councils, partly from the three LEPs via their Local Growth Fund allocations. The combined Local Growth Fund (LGF) and other LEP investment sits at around £900m, covering several aspects of the investment package above.

The £50m for Business Innovation (also covered by LGF) is spread across the three Local Enterprise Partnerships and Government, which is intended to co-ordinate current business support so that it has more economic impact.

There are also annual fees associated with being a Constituent Member, a non-Constituent Member and an Observer:

  • £250,000: Constituent Metropolitan or County Council;
  • £100,000: Constituent District Council;
  • £25,000: Non-Constituent Member or Observer;

However, note there is a discount for early payment (…cashflow is King…), which brings in the total from fees to £1,848,750 for 2016/17.

In addition, for 16/17, all Constituent Authorities set aside a “contingency fund” of £500,000 to fund the transition.

The Metro Mayor/The WMCA

Oooh, curveball. Yes, it can do some things for itself (well, eventually). May it continue.

Firstly, the Business Rate uplift and increases associated with the Enterprise Zones and the pilot should raise an additional £36.5m per year.

Further, the £200m Land Remediation Fund, which will enable Mayor Andy Street to achieve his “brownfield first” dreams, and can only be spent on Constituent and non-Constituent areas of the WMCA — although, it has been made clear that it will mostly be spent in the Black Country, for obvious reasons. This fund is created by borrowing on the back of the £36m gainshare revenue grant. Initially, this borrowing is being done by the City of Wolverhampton Council, but will be bought and continued by the WMCA once it is able to borrow.

75 percent of this fund is earmarked for programmes of strategic developments, with the remainder intended to support individual strategic developments and to complement the Collective Investment Fund. There is some scope for this fund to be used to make equity investments, which could create another income stream in the future.

While these options are yet to be exercised, funding options that can be exercised by the Metro Mayor are the Mayoral Precept (a Council Tax levy on Band D and above properties which will fund the Mayor’s office) and the Business Rates Levy.

***

There are a few elephants in the room with us. The investment and its projected impact was calculated before Brexit, but no-one seems terribly keen to revise this. Saying that, it is on the radar of the Audit, Risk and Assurance Committee, which is cognisant of the potential impact on business rate growth, interest rates, etc. It might come up at the 2017 AGM, who knows.

Second elephant: timescales. Under the current estimates, the projects will be completed around 20 years before the borrowing is paid back. Even if that is fine (big if), can we afford slippage, Brexit-driven or otherwise?

Then there is devolution. Fiscal devolution it isn’t. Even the Mayoral Precept represents little more than a (slight) loosening of the cap on Council Tax rises, and Council Tax is already well short of the challenge of how we fund our cities.