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The devolution of significant powers to raise and spend money locally, initially to a limited number of areas, would build on much that has happened in England over the past decade. Localism, City Deals, Community Budgets and the partial localisation of business rates in England all point to growing, greater local control over how money is spent and, ultimately, over how such money is raised in order to be spent. By comparison Scotland and Wales are gaining much greater control over taxation and borrowing, including responsibility for business rates, stamp duty and partial control over income tax. And all political parties recognise that the existing proposals will go even further in Scotland under so-called "devo max". A similar case can be made for devolving many of these powers to areas in England—some of whose GVA [Gross Value Added] is greater than that generated in Scotland or Wales.
We support the principle of fiscal devolution in England and call on the Government to work with local government to devise a fiscal devolution framework for local authorities. No-one who submitted evidence to this inquiry opposed fiscal devolution, though some wanted to go no further than decentralisation of spending. We see fiscal devolution and decentralisation of spending as going hand in hand. In this report we identify key features of the design of the new system. The first is that any system of devolution should recognise need while balancing incentives for local areas to build up their economies. Second, fiscal powers should be devolved to groups of local authorities, covering a recognisable large-scale area, that can demonstrate how they share, and work together as, a functioning economy. Given central Government's interest in wider economic policy, which for the foreseeable future will focus on deficit reduction, these authorities will also need to demonstrate a strategic and prudent approach to planning and investment. But continuing fiscal devolution should be something for the medium and long term. Third, a strong, locally agreed governance model will also be required. We do not prescribe a particular governance model, but any arrangements must be detailed and transparent, with a clear means of scrutinising decisions and holding those with power to account. If more significant and meaningful decisions are made locally about how money is raised and invested, local people should have a better opportunity to identify and hold those making such decisions to account.
Fiscal devolution will not happen overnight, but with an agreement in principle local and central government should then get on with implementation. Central Government should establish the general framework within which fiscal devolution can take place, so that those local authorities that are not ready, or do not wish, to take on significant fiscal devolution now are not permanently excluded. To that end authorities should have access to enhanced powers over how money is spent locally, and authorities that collaborate should have access to greater strategic powers. In addition, we suggest there should be greater freedom over council tax for all authorities. Local and central Government should agree on a specific means of negotiating fiscal devolution. We suggest this might be done through a wide-ranging Growth Deal—a fiscal agreement.
The transfer of enhanced tax and borrowing powers from central to local Government may take time and require complex negotiations and, although our report addresses the technical issues, it is fundamentally about the transfer of power to local authorities and local communities. Fiscal devolution is the logical next step on the path to genuine localism. We think a start should be made.
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