Ministers explore how to stop regional leaders misusing planned new spending powers

Ministers are mulling over how to ensure that England’s regional leaders do not misuse their newfound spending muscle, as Whitehall prepares to devolve more revenue to local levels.

Ideas under consideration include a new select committee in Westminster, enhanced reporting rules and a new audit body focused on local and regional government.

The Guardian understands the idea has even been mooted of allowing spendthrift mayors to be recalled by the electorate, as can happen to rule-breaking MPs.

The government will publish a white paper on “rewiring the state” later this month, setting out detailed plans to hand over more income tax revenue to regional mayors.

Rachel Reeves suggested the idea in her Mais lecture earlier this year, and it has been adopted by Andy Burnham’s government, which sees devolution as a big part of its growth policy.

However, officials are concerned about how to ensure local leaders are fully accountable for what they do with the additional cash – including in between elections.

Meg Hillier, the chair of the Treasury select committee, said she believed hers would be the right body to scrutinise the use of the additional spending powers.

“It’s clear that one of the prime minister’s key ambitions is to take spending power out of Westminster and hand it to local leaders,” the Labour MP said.

“It is absolutely critical, though, that strong, clear scrutiny structures are established which match this move to localism. It would be reckless to hand out new powers without ensuring there are transparent mechanisms to hold mayors to account for their decisions.”

Hillier added: “One way to do this is to establish clear lines of authority running through departments and up to ministers, which will allow existing select committees to judge this work.

“A core role of a select committee, particularly the Treasury committee which I chair, is to ensure politicians are publicly held to account for how they decide to spend taxpayers’ money. That is just important at a local level as it is on a national scale.”

The Audit Commission, which had the specific task of overseeing local government spending, was abolished in 2015, with its role split across several other bodies.

As well as shoring up accountability, it is understood there have been lengthy discussions in government about how to balance the need to incentivise local leaders to encourage economic growth, with the imperative to ensure funding is stable over time.

The Institute for Fiscal Studies said last week that the government should use “equalisation payments” to prevent the funding of areas with the highest share of income tax, such as London, pulling ahead of other regions.

David Phillips, the IFS’s devolution expert, said: “With more skin in the game of economic growth, mayors will be more incentivised and empowered to support growth through local policies and investments. But careful design will be needed to prevent richer areas’ funding unfairly pulling ahead.

“The government must also decide how big a gap in funding it is willing to see between ‘winners’ and ‘losers’ in the years ahead.”

Burnham has made clear his intention of accelerating devolution, with his new No 10 North office focusing on the regional aspects of growth policy.