Devolution in England: the case for local government - Communities and Local Government Committee Contents

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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Prepared 9 July 2014