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Fiscal Devolution: the Devil’s in the Detail

Posted on May 02, 2019

“It is not reasonable to expect (local authorities) to engage in the activity envisaged by the national plan, as long as a substantial part of the cost is likely to fall upon local rates… Nor is it desirable, once there is a plan for national development, that the ability of local authorities to collaborate fully should be dependent upon their credit status.” William Beveridge

Be careful what you wish for; it might just come true. It’s a sentiment that applies to many things these days and fiscal devolution is arguably one of them.

Treasury, of course, have recently mooted greater devolution of tax raising powers to local government.

While such signals may be warmly welcomed by some, perhaps without question, others, SIGOMA included, take a more nuanced view.

In Isiah Berlin’s influential essay, Two Concepts of Liberty, he rightly drew the distinction between the ideas of negative and positive freedom, asking: “What is freedom to those who cannot make use of it? Without adequate conditions for the use of freedom, what is the value of freedom?”

So, while greater fiscal autonomy would give local government greater freedom from the centre, without adequate equalisation and overall funding, it could also leave many individual councils with much less freedom to execute local plans in practice.

After almost a decade of austerity, of which local government has indisputably borne the brunt, this question is particularly apt, and nowhere more so than for the most deprived parts of the country, which the government has continued to subject to the deepest cuts.

Freedom for leaders of these councils has been increasingly reduced to the freedom to choose what vital services to cut next, while our freedoms to invest in programmes to improve the lives and prospects of local residents, as we would like, have been dramatically curtailed.

Changing the sources of funding available to councils while central government maintains its mantra of fiscal neutrality (no new funding without new responsibilities) will not remedy this situation.

In fact, without the necessary redistribution that currently takes place at a national level it could see the divide in levels of service provision between deprived and affluent areas deepen still further, ushering in an even more pronounced postcode lottery.

Mark Sandford, Senior Researcher at the House of Commons Library, who specialises in local government and devolution, has rightly argued in this vein that: “Any system of fiscal devolution that allowed local areas to retain the revenue from [new local] taxes would result in very different levels of revenue (both in absolute and per capita terms) for different areas – unless mitigating action is taken.”

Years of cuts have significantly compounded such concerns and could act to constrain in practice any freedoms that greater fiscal devolution may promise.

Professor Allan Cochrane of the Open University has argued for example that: “financial devolution at a time of fiscal stress means the devolution of responsibility without an equivalent devolution of power.” This, he notes, simply means “decisions take place within centrally determined (and narrow) budgetary constraints.”

The progress of devolution to date has been piecemeal, characterised by unbalanced with deals done behind closed doors without a clearly defined and universal menu of options.

The Government narrative is that devolution should be a bottom up process and the centre should not be overly prescriptive. It’s a noble and reasonable sentiment. But in reality, this justification increasingly rings hollow.

If the process was genuinely bottom up, ministers would not have opposed proposals for One Yorkshire devolution, and if it was genuinely nonprescriptive, they wouldn’t have recently clawed back housing funds from Greater Manchester because they elected not to build in certain areas.

We are not against devolution in principle, in fact we welcome it. But we are against the kind of piecemeal devolution that seeks to divide and rule, devolution with strings attached, and fiscal devolution in the context of a woefully insufficient quantum and with no guarantee of fair equalisation according to relative need.

In this sense, far from a panacea for local government’s current funding crisis, greater fiscal devolution could become something of a Trojan horse, heralding further unbalanced cuts in practice for authorities with weaker than average local tax bases, while the Government continues to claim austerity is coming to an end.

So, with the apparently enticing offer of greater fiscal freedoms, local government must be careful that Treasury is not, once again, passing the buck without passing the bucks.