Devo review: time to scrutinise Osborne’s local funding plans

11 Nov 15
There is little disagreement with the principle of government’s plans for devolution revolution in England. But now that the chancellor has begun putting his money where his mouth is, it looks like there is not enough cash.

Very few people disagree with the idea of politics from the bottom up, of autonomy for local areas at the heart of George Osborne’s plans to devolve powers to local areas. Recent polling by Ipsos Mori shows that the public is generally supportive of greater powers being devolved to local government.

However, the devil has been in the lack of detail; perhaps most significantly, in the form of lack of clarity over money.

Osborne’s revolution began in Manchester, the focus of his Northern Powerhouse, spreading to Cornwall, Sheffield and most recently, the North East. As always though, a lot of the debate comes down to money. Set against the context of significant cuts to local authority budgets, the offer Osborne has on the table looks hollow as he gives with one hand and takes with the other. The Institute for Fiscal Studies estimates that between 2010/11 and 2019/20 there will have been a cut to central government allocation of local funding by 64.3%. Just this week, ahead of the Autumn Spending Review, Osborne announced a deal with DCLG which will see its spending cut a further 30% over the next four years.

Running concurrently with this has been the replacing of Regional Development Agencies with under-funded Local Enterprise Partnerships (who also are limited in remit to economic growth). Yorkshire Forward, Yorkshire’s RDA had a budget of around half a billion pounds a year, which dwarfs by far what is currently on offer.

Sheffield City Region’s deal, for example, offers £30m a year for thirty years, alongside an elected mayor and new powers for the region. However, once the initial glare of that amount of money fades, it doesn’t turn out to be very much. Last year Sheffield City Council (and lest we forget the Sheffield City Region is Sheffield, Doncaster, Barnsley, Bolsover, Rotherham, Bassetlaw and North East Derbyshire) made cuts of £40m. In the financial year 2015/16 they expect to make £60m worth of cuts. In addition, Osborne’s offer of a lump sum not adjusted for inflation.

That leaves the option of local government raising its own funds. Business rates devolution could well offer a route here, but current reforms mean councils can cut business rates, but not raise them. The move toward fiscal devolution whilst pulling back on government grants is a risky move, particularly in the case of a city like Liverpool. Liverpool City Region raised £471m from business rates in 2013/14, less than half the £1bn grant funding the area receives from government. For the region, new powers to cut business rates will not help them plug that gap.

So what reforms will equip local areas and city regions to successfully exist as devolved institutions? Fiscal devolution is the road that most political paths are leading to at the moment, although that in itself has many issues. In 1921, Labour Councillors in Poplar revolted over the decision of rich London boroughs not to allow redistribution of their tax take to Poplar and the East End. This tension still exists today, with the aforementioned Ipsos Mori polling showing that there is serious concern in the public about ‘postcode lotteries’.

Considering the regional inequalities that persist in the UK, the large variations in the tax base and the need for investment, central government still has a hugely significant role to play. A fiscally devolved and responsive system, tailored to local areas, alongside grants from government to try and offset inequalities has happened before, but could well be a solution when combined with Osborne’s ‘single pot’ approach, whereby there are fewer restrictions and strings attached to the money local government receives from Whitehall.

Ultimately a rebalanced economy will go some way to addressing these issues, but to get there, there is a real need to try and balance devolution with redistribution and social justice using central government. Although George Osborne’s devolution offer is the only one on the table at the moment that does not mean that it should be exempt from scrutiny. Now that the money is clearer in the Osborne’s ‘devolution revolution’, the shortcomings need to be pointed out and addressed. There needs to be a light shone on one of the government’s most significant areas of reform.

  • There is little disagreement with the principle of government’s plans for devolution revolution in England. But now that the chancellor has begun putting his money where his mouth is, it looks like it is not enough cash.
    Dan Holden

    Dan Holden is a researcher for the Smith Institute and freelance journalist; his writing has appeared in the New Statesman, New Start Magazine and the Guardian amongst other publications. He can be found on Twitter at @DanSHolden

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