Financial control needs to be devolved from Westminster

15 May 19

Urgent and radical decentralisation will have to depend on resource-based expenditure if we are to rebalance the economy through a strong local state, argues Joe Fyans, head of research at Localis.

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The United Kingdom must urgently decentralise to preserve democracy and restore social mobility. When in 2009 Localis issued a report on international progress in localism, this statement would have seemed beyond hyperbolic.  But a decade later, the numbers, tragically support this contention.

Hansard polling has the UK ‘poised to embrace authoritarianism’. National politicians are attacking the legitimacy and durability of British democracy left and right – they are finding sympathetic audiences in all sections of the public.

In our new report ‘Hitting reset’, we urge radical decentralisation to bring people back into the democratic fold and mend our tattered social fabric by devolving power from a political complex located in SW1 – a form of governance which is seen by too many as too remote and disinterested.

A common argument against this imperative deserves consideration: that a fiscally devolved UK would lead to a postcode lottery, where people in areas with high potential tax revenues and subsequent spending would be much better off than those in lower tax-revenue areas.

This is a serious concern, and no decentralised country does not practice some form of redistribution among regions to address it.  That said, focusing on it in the current UK context is somewhat disingenuous. Because after all, we already operate a postcode-lottery system of egregious magnitude.

The Guardian’s ‘London Versus’ series, whilst supremely unhelpful in reducing the issues of the country to a competition between London and everywhere else, highlighted well the variable state of local service provision. Mental health services vary massively in their availability and quality across the country, in large part due to huge funding disparities.

It’s true that we don’t know whether councils armed and empowered with real, tax-and-spend powers would be able to provide better, but it’s also true that relying on handouts from central government certainly isn’t doing the job.

The same could be said about the prime minister’s pledge to end what she correctly terms a postcode lottery in domestic abuse shelters.  

The burden is being transplanted onto local government to alleviate the problem, and funding has been provided. But to be more than just a delivery arm of the central state, local government needs more than an instruction and a hand-out: it needs the capacity to manage its own affairs, as would befit a serious body charged with responsibility for delivering such crucial social services.

To be clear, the ending of the postcode lottery is as much a political issue as an economic one. There is sound logic to continually targeting investment towards one or two powerhouses as a means of lifting overall prosperity.

But as our recent local elections have shown, people are not feeling patient. A rising tide may indeed lift all boats but at this point a good many of the vessels on this particular stretch of ocean are facing mutiny.  

In Hitting reset, we argue that a managed decentralisation of the political economy is needed, via a British Investment Bank, to allow the kind of infrastructure improvements that a centralised state has failed to provide.

Furthermore, we call for a Royal Commission to begin the process of fiscal devolution, ascertaining the correct taxes and implementation timeframes and, crucially, a transition towards a system of local government funding based on resources rather than expenditure.

For example, it is highly unlikely that a place like Northumberland, positioned as it is, will match the powerhouse status that a Sheffield or a Leeds has the potential to achieve – but there is much in Northumberland worth supporting through public money.

A resource-based grant system would recognise and allow for this whilst still allowing authorities to take part in the tax-and-spend that is the essence of governing. This, rather than simply increasing the size of central government funding to pre-2010 levels, or throwing out ever-more bidding contests for cash pots, is the way to put an end to the postcode lottery.

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