Councils must prepare now for fiscal devolution

16 Sep 15

Local government will need meaningful fiscal devolution in order to bring about transformation in transport, health, skills and other public services as part of the government’s devolution drive. It must develop governance arrangements now to stand ready for these kinds of powers

While Greg Clark has stated that he is “not persuaded” that fiscal devolution is “necessary or desirable”, a growing clamour of voices from inside local government say that it is both. Suggestions have coalesced around the possibility of partial or full business rate retention, but it’s been suggested that Whitehall should go further. In particular, it has been suggested that authorities should be given greater freedom to borrow.

The arguments in favour of fiscal devolution are certainly compelling. They would give cities, and other areas to which finances are devolved, far more freedom to invest in services and to bring about local growth, and the incentives to use the additional income to benefit the local community and economy.

Something of the true potential of meaningful fiscal devolution can be discerned from the outcomes of the Total Place pilots of 2009/10 under the last government, and the more recent Community Budget pilots. There is the potential to transform local services, and in so doing save significant amounts of money – running to multiple billions. This begs the question as to why it seems so unattractive to ministers

It can be dangerous to read between the lines, but there may be two principal reasons why Government is so unwilling to release its hold on the purse strings. Both relate, in their way, to governance and accountability.

Firstly, the loss of power involved gives central government fewer levers to use to influence, direct and implement policy at local level.

Secondly, government will be worried about the possibility of local areas “going bust” – effectively, that combined authorities (or whatever other structures to whom the power to raise funds is devolved) would somehow overstretch themselves in their ambition, and that government would have to pick up the pieces. This risk is perhaps exacerbated where the power to borrow money sits in the hands of a single Mayor.

However, Whitehall will find it increasingly difficult to justify the decentralisation of outcomes without the consequent devolution of powers to bring those outcomes about. Those at local level could, rightly, argue that without meaningful fiscal devolution, they are being asked to bring about change and transformation on transport, health, skills, education, and other devolved matters, with one hand tied behind their back. There must be a clear sense of who is responsible for what, how and when finances might be devolved, and what governance under a fiscally-devolved regime might look like.

This goes beyond the mere establishment of new audit procedures, or new rules for financial management. The governance answer for fiscal devolution is the answer to the devolution question more generally.

In France, this issue has been tackled, with moderate success, through “contrats de ville”. These contracts, between central and local government, deal with skills and employment, economic development and social cohesion; their remit and nature is wide-ranging, and they rest on a national framework. Accountability and governance measures – in particular, the involvement of local people – is built in. These contracts have had particular impacts in more deprived areas, where large social and infrastructure projects are seen as ways to bring the whole community (state actors, partners and the public) around a single aim. It is this process, arguably, which brings about a level of accountability which is lacking in the English model.

In England these governance systems – beyond the presence of a mayor and an overview and scrutiny committee – are not so overt. The French experience suggests that meaningful fiscal devolution can happen as a result of a dealmaking process, while providing the governance assurance that government is looking for.

Where next? The government has not closed the door entirely on fiscal devolution – but to argue its case, local government must demonstrate its commitment to establishing and maintaining rigorous and robust systems of accountability, which break out of the traditional model of committees of councillors receiving reports on issues of interest. There is a role for a partnership of councillors and local residents to hold to account, and support, new governance arrangements for local areas. As in France, a common sense of endeavour can be built up around clear, unambiguous local priorities for social and economic development. This common understanding of local priorities can provide a grounding for critical local borrowing decisions. They will certainly make local debate and discussion easier, because those discussions will be predicated on a widely-shared understanding of what priorities are, and how borrowing can help to tackle those priorities intelligently and prudently.

The challenge now is to design and develop governance arrangements that can stand ready for the devolution of these kinds of powers. Local government needs to be on the front foot, to put the systems in place to deal with new powers whose existence may currently be seen as notional. It is only by stepping up to this opportunity, and pressing the point with government, that the sector will realise its significant ambitions.

  • Ed Hammond
    Ed Hammond is the head of programmes (Local Accountability) at the Centre for Public Scrutiny

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