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It is true that one of the challenges for councils on economic issues is always to distinguish their interests as institutions from the economic interests of the wider functional economic area to which they belong. That is why discussions about coordination on economic affairs turn rapidly to discussions about governance.
Some of this can be blinkered navel gazing of very little interest to businesses and residents of the area, outside the local government bubble. But some of it has deeper resonance. Combined Authorities are in essence a governance mechanism which allows for the pooling of sovereignty by individual councils for the greater good – and the proposed legislative changes are designed to ensure that a small number of refuseniks cannot upset the apple cart where a majority of authorities are keen to co-operate using that mechanism.
You point to some of the obvious problems which could arise under this approach. The obvious alternative would be to have a mechanism which ensured that a (say two thirds) majority of councils within any proposed CA area would be binding on the minority. This is in effect how the issue of precepts was decided within London, in respect of London-wide bodies, following the abolition of the GLC. Then, a budget was set for each London-wide body by majority vote of the 33 London Boroughs and the City of London. Assuming that passed the two thirds majority then it became binding on all the others to pay (pro rata to population).
Over the course of these arrangements a minority of boroughs did propose moving to a smorgasbord arrangement – with each only paying for whatever services it wished to purchase – but this was not considered operationally realistic by the majority of councils, irrespective of political control.
Of course, there are two main differences there – the area of Greater London was clearly defined from the outset (unlike CA areas which are to be self defined); and the scope of the compulsion was limited to precepting in a limited number of areas . Outside of those circumstances, it becomes more difficult to propose use of that model in the face of democratic opposition by one or more councils. Probably best then to leave the issue to elightened self interest and the verdict of the voters if attitudes struck by one or more councils are felt to be perverse.
The other relevant point is that the changes proposed by government also open to door to councils in an area adjacent to a CA, but not contiguous to them, to ask to join the CA. One could envisage circumstances where, if there was a lack of agreement between councils, or tiers, within one area, for a council or councils in that area, to ask to join up with a neighbouring CA which might better serve their interests, even where functional economic linkages might be weak. It may be interesting to see how/whether/where that may happen.