6 Conclusion
Time
for change
149. Fiscal devolution in England is an idea whose
time has come. The long shadows cast by the fiscal turmoil of
the 1980s and 2000s—failed reform of local government finance,
financial irresponsibility in parts of local government, inflexible,
formulaic equalisation of local authorities' needs and resources
and, above all, firm control by central Government—have
started to recede. A few tentative steps towards fiscal devolution
have been taken in England with City Deals and the partial localisation
of business rates. But the most striking changes have occurred
outside England. As devolution to Scotland and Wales has gained
momentum it has brought with it significant fiscal devolution,
and the anomalous position of England has become starker. Many
English cities and regions have economies larger than these countries.
Why should they not have fiscal devolution too?
150. We found across England a demand for decentralisation,
particularly of spending, and in some areas a strong appetite
for fiscal devolution. In our previous report on Localism,[283]
we endorsed the idea of shifting power from Whitehall to the town
hall. We therefore support fiscal devolution in principle. It
is the logical next step on a path to genuine localism.
151. A small group of local authorities, led by London
and the Core Cities, are ready to move on to the detail of implementation.
They want greater control over a wider range of taxes, and enhanced
prudential borrowing powers, to provide resources to fund local
economic strategies suited to their local needs. Their proposals
are moderate and would increase local control of taxes by no more
than a few percentage points, still low by international comparisons.
This report aims to get things moving in the short term. In the
medium term, with the introduction of limited fiscal devolution,
a review of the local-central government relationship in England
and an examination of further fiscal devolution, English local
authorities should be able to move from earned autonomy to devolution
as of right.
How fiscal devolution will look
152. The key features of the fiscal devolution we
want to see adopted in the next parliament are as follows.
a) Local
and central government should agree a framework of taxes, powers
and responsibilities which can be devolved and decentralised to
local authorities. The framework would provide a range of options
for local authorities from decentralisation of spending powers
to full fiscal devolution of several taxes and powers to institute
new taxes and enhanced borrowing powers.
b) The initiative
for seeking powers and responsibilities should lie with local
authorities.
c) The area
to which fiscal powers (as opposed to decentralisation of spending)
are initially devolved should demonstrably function as an economic
unit—most likely being a group of authorities such as in
London or the areas covered by combined authorities.
d) The functional
economic area should be able to demonstrate a record of competent,
strategic financial management and have governance arrangements
which ensure transparency and accountability, including democratic
elections.
e) The powers
and responsibilities devolved should be subject to negotiation
between the authorities seeking the powers and central Government.
f) An independent
office would bring objectivity to the process: evaluating devolution
proposals; assessing relative needs and resources of local authority
areas, including devolved areas, every 10 years; and commissioning
the independent revaluation of business rates and council tax
values every five years.
g) The arrangements
governing fiscal devolution have to balance incentives to stimulate
local growth, a key rationale behind fiscal devolution, with some
equalisation and redistribution of resources from authorities
with the greatest resources to those with the greatest needs.
These arrangements would: require an assessment of need and resources;
have a mechanism for redistributing disproportionate growth; provide
a safety net for local authorities facing severe and unexpected
downturn in their circumstances; and include periodic reassessments.
h) Decisions
on national levels of public expenditure in England are for ministers
but the current system of public expenditure control will need
to be adapted to allow fully funded local expenditure no longer
to count against tight national controls.
283 Communities and Local Government Committee, Third
Report of Session 2010-12, Localism, HC 547 Back
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