Devolution: the English problem

With less than a year to go to the general election, it's time to examine the parties' true commitment to 'radical devolution'. CIPFA’s chief executive offers 20 questions to test any future proposals on localism and reform of local government finance in England

Any discussion on the reform of local government finance shouldn’t start with the mechanics but, instead, must ask the question: ‘what is the problem we are trying to solve?' The answer is threefold:

• First, because there is not a coherent settlement on what local government is for, it is not possible to say how best it should be financed.
• Secondly, it is the case that in the opinion of neutral professionals and observers the present system is unsustainable because its contradictions and problems will be stretched to crisis point by fiscal austerity.
• And thirdly, the sustained focus on the ‘Total Place’ problem of multiple and overlapping interventions by agencies in relation to the same families has not seen an industrial scale solution for horizontal working in localities. Whitehall departments remain reluctant to materially break their vertical chains of command. The view remains that fragmented local accountabilities and civic equity inhibit strategic thinking and longer-term visioning/planning about the best use of every public pound.

In our fluid system, underpinned by an unwritten constitution, the form and function of local government reflects the policy of the government of the day and does not command a cross-party consensus. Over a period of decades, English local government has been reduced to a dwindling set of prescribed services that councils are permitted to perform.

We do not really have local government, but rather councils with responsibilities for some local public service. The sector does not decide the policy on which it will act or have the powers to tax or borrow to the degree needed to execute this for the area it serves.

Our system is unusually constrained by international comparison. The London Mayor and the boroughs determine 7% of taxation raised in the UK capital, while for the Mayor of New York it’s 50% (with policy freedoms linked to the delivery responsibilities of a $50bn budget and 250,000 staff). This is not about higher tax, more staff or higher spending – New Yorkers pay less tax than Londoners with fewer staff in the public service – but rather about who is accountable for determining policies and priorities, raising tax and deciding how best to deliver services.

The extent of central control is not understood or acknowledged to the degree that language is applied sloppily. All parties cite ‘radical devolution’ as a policy aim when in truth it is usually not devolution at all. Rather it’s an intention to distribute more central government funds or responsibilities for local government to manage on behalf of central government for as long as it’s permitted to do so in a world of pilots, bids and earned permission.

Mostly the last 50 years has seen the nationalisation, or other form of transfer, of previously local government functions; most notably health (where London County Council was the biggest hospital provider in the world until 1948) but over the years a range of services such as courts, further education colleges and now schools. Next, perhaps, could be local land charges.

The point about transfer to other local autonomous institutions is noteworthy. Local government in England, for example, is not trusted by UK central government to manage schools and so in effect the Department for Education has taken over central control in the name of localisation beyond councils to communities or new autonomous bodies. Now grappling with its role, the department will create a form of regional or local management outside of directly elected accountability.

If local government has not overcome the tendency of Whitehall departments to create their own delivery mechanisms, or indeed their own form of elected localism such as police and crime commissioners, it must reflect on the failed opportunities to be the community leader of choice. The sector appears defensive about its structure, patchiness and governance challenges.

As a former London borough chief executive, for example, it is evident to me that London does not need 32 unitary boroughs – there are more individual services and councillors than needed, but transversely perhaps not enough community localism as deserved. However, if the structure is not perfect, this is not to say that local government is not always effective – some of the best innovation, people, services and community leadership are found here.

But, local government’s poor reputation with policy makers has led to less responsibility and the vicious circle of fewer local leaders of gravitas.

In relation to the second problem, that the finance system is unsustainable, it would always be under pressure faced with 30% less central grant given that all successive governments load the system to favour their own constituency. Over my career I have seen ‘simple and transparent’ mean giving more money to Conservative areas and ‘fair and transparent’ mean giving money to Labour areas.

But, with the de facto crude and universal capping inherent with the government determining the threshold of council tax referenda, the system will break over the next decade.

And thirdly, the pressure of wasted and ill-coordinated interventions was most apparent during the years of growth and multiple new funding streams; but even during the lean years it remains clear that vertically controlled funding does not engender sufficient investment in prevention, early intervention and upstream weighting of public resource.

With the exception of police and crime commissioners, most public service reform in England – such as the NHS, schools or the Work Programme – is primarily designed around competition; with collaboration as a boon rather than a design principle. Competition does save money up to a point, but not system wide and so flexibility is needed.

So can our model of local governance be improved? Realistically, significant and wide-ranging reform is unlikely in the short or medium term. All the main parties are in the territory of potentially tweaking the status quo rather than making root and branch reform to create a form of devolved local governance in England with powers to act across all policy and delivery areas and the tax base to finance this.

The direction of holistic devolution from Westminster to Scotland, Wales and Northern Ireland is not about to happen in England. Whilst content to devolve to nations, sub-national or regional devolution in England is conceptually stuck. Reorganisation would be time consuming and expensive and might not be wanted by the public given the failed vote for the North East regional assembly in John Prescott’s time.

So the continued settlement is one of Westminster holding all the cards for England; and local government stuck between no sub-national solutions while its form, function and resourcing on the ground are eroded. The main parties have sleepwalked into the decline of English local government rather than set out to abolish it.

But there is an opportunity in the run up to next year’s election to reframe the debate with the serious media, policy commentators and the public to test parties’ proposals and tweaks against a better informed and longer-term perspective.

What are the right questions we can ask parties about their proposals to explore each of the above problems and so identify what local government is for and the characteristics of a sustainable finance system to underpin this that would incorporate a broader set of policy and delivery accountabilities? Questions must include asking what is their sub-national solution in response to the problem of highly limited English devolution.

We elect people to run the country and we elect people to run our area. On the latter, what is local government responsible for and what do we mean by area? Should the design principle in England be ‘central/national by default’ or ‘devolved/local by default’? Given our imbalanced system, would radical change be considered?

• Q1: would government accept a review of departments with an expectation of ‘local by default’ to streamline Whitehall where, other than UK-wide functions reserved to departments of state and its agencies (for example defence, immigration, borders) all budgets and powers are devolved? To be effective, such a review would be a policy of the prime minster and cabinet and coordinated by the centre.
• Q2: would government accept that for new devolved budgets councils, on behalf of communities, identify the quality and priorities expected from local bodies?
• Q3: would government accept that ‘make or buy’ decisions (provide or commission) are devolved? If not, by what means are they determined by central government?
• Q4: how would savings be achieved from new ‘devolved aggregation’? Are these national savings for the exchequer or savings to be redirected without strings post-transfer?

Of course, this inexorably raises the issue of what do we mean by ‘my area’ and who would be best accountable for these local (sub-national) decisions? For example, where I live in London needs better flood defence, more school places and controlled parking. Do we want these decisions made by different tiers of local government or by unitary councils?

The knotty problem across the country is that arguably many councils are too big to be local while others are too small to be strategic, and some councils are stuck in the middle and fall foul of both characteristics.

Interestingly, determining the shape of local government is a matter for the devolved administrations outside of England, whereas ‘double devolution’ in an English context is often more a matter of central government cutting out what it sees as the middle-man of local government by creating markets of autonomous delivery/provider organisations.

• Q5: how would local government be arranged to receive radically devolved responsibilities?
• Q6: would Westminster replicate devolution to Scotland, Wales and Northern Ireland to English regions? For example, how would functions such as infrastructure, health or criminal justice and offender management be arranged in metropolitan or rural regions such as Greater Manchester or Cornwall?
• Q7: would this align and be the same elected official as the police & crime commissioner?
• Q8: could regional, county or big city mayors determine – as can the devolved administrations in Scotland, Wales and Northern Ireland – the organisation of local government that suits that area, or would the pattern of double devolution be determined by Westminster?
• Q9: could such change be agreed by a royal commission on a cross-party basis to avoid ping-pong reform?
• Q10: thereafter would central government consult and seek consensus on future changes to lock in a sustainable constitutional settlement on English devolution?

This leads on to the system of finance that would be required. Since Queen Elizabeth I’s Poor Law of 1601 local administration has been funded by a property tax. The unique annual tax bill is not a popular tax and at present the government sees maintaining its low level as a matter of their national political credibility rather than one of local accountability.

Is this the best way to fund local government in its present form, let alone a radically different form? Of course, if the design principles of local governance were visited then government would need to revisit Layfield et al in relation to a credible and resilient taxation regime to underpin it. But, there is not room for complacency in the absence of reform. The present system, even to finance the status quo, is not sustainable.

And to avoid history repeating itself we know from Layfield onwards that an announcement ‘to review’ is unlikely to mean change then occurs. At some point a future government will need to make some in-principle decisions with any work then commissioned to ask how best to implement it rather than whether to do it.

There are important issues to consider. To what extent would a devolved system raise taxation locally with no means of resetting baselines; and/or to what extent would resources be equalised to address need? In other words, in principle would a national government wish to address poverty through programmes of additional national money or by redistributing new locally devolved taxes?

The questions are:

• Q11: what is the right balance of funding needed to mean that the present system is sustainable and any devolution is effective?
• Q12: if budgets are devolved, what sources of national taxation are best devolved/assigned to local taxation? Does government accept that the elected leadership of London, Greater Manchester or Cornwall sets income or other taxes?
• Q13: would the system be designed to effect equalisation? For example, if business rates were denationalised or income tax assigned would there be reset periods to reflect that some areas have higher rates of growth and tax yield?
• Q14: would government end the de facto use of equalisation to engineer political gains for its areas of support? If government transparently sets out its policy aims, including resource shifts, would it ask an independent authority to ensure credible and fair implementation, including in relation to revaluation?
• Q15: if devolution were a whole of government policy aim, should the Department for Communities and Local Government continue? Would the centre (Cabinet Office and/or No 10) take policy responsibility for whole of government devolution policy and the Treasury whole of government fiscal devolution and sponsoring an independent commission?

So would new controls be needed? In a system of democracy the public assesses whether politicians have made a positive difference. But what safeguards and scrutiny are required to create proper checks and balances in a more devolved system with powerful sub-national and local leaders? For councils the present framework incudes:

• the searchlight provided by governance structures such as scrutiny
• the voluntary ability to create a standards committee, which by law cannot now have independent members (non-councillors) making a judgment on censure
• audit committees
• the role of statutory officers protected in law
• external auditors who can issue a report in the public interest
• regulators such as Ofsted or the care Quality Commission
• parliamentary scrutiny of national money voted by parliament to local institutions, supported in England by the National Audit Office

Over recent years the abolition of the Audit Commission received mixed opinion. Change was generally welcomed in relation to inspection, which appeared counter-localist and burdensome; but there remains a cause for concern in relation to independent local audit. Foundation trusts, for example, appoint their external auditors and so far not one public interest report has been issued. Will this be repeated in local government?

A present tension is parliamentary accountability. The Public Accounts Committee is uneasy about the role of government departments in assuring that value for money is achieved for national funds from local institutions such as policing and local government. Would devolution and the assignment/transfer of national tax-raising to local government end this tension?

• Q16: to what extent would enhanced local government need new checks and balances to ensure value for money? Would these operate within the system – through governance, audit and officers – or by external regulation sponsored by Westminster too?
• Q17: For Scotland, Wales, and Northern Ireland, external regulation arrangements are devolved from Westminster. Would this apply to sub-national arrangements in England?
• Q18: Is Parliament/Public Accounts Committee explicitly responsible, or explicitly not responsible, for public expenditure raised outside of parliamentary vote through local taxation? Under devolution would ‘system statements’ for the accounting officers of government departments relating to local institutions be strengthened or abolished?
• Q19: Should corrupt political leaders be removed from office, say by recall, outside of criminal law; or is the settlement that national standards/suspension are abolished to remain?
• Q20: Would competition policy and regulation, for example in relation to health, be devolved sub-nationally in England or remain with Westminster? Would the day-to-day tension between local collaboration and top-down contestability policies be resolved by national or local government?

In truth, as a committed localist and finance professional, my 20 questions are loaded to expect change. But I would argue that at present the questions are loaded to maintain the status quo. It’s time to reframe the debate.

Rob Whiteman is the chief executive of CIPFA