Peter Riddell: Devolution is all well and good – but can you really have more power with less money?

Opinion: The need to find new ways of delivering services while resources are tight is the real reason for the new localism push

By Sir Peter Riddell

20 Oct 2015

Always beware a politician promising to give power to someone else. There is normally a catch. So while the plans for English local government are unquestionably far-reaching – starting to reverse over 40 years of centralisation – the new financial freedom is tightly constrained. There is less money around.

George Osborne has been talking about the ‘Northern Powerhouse’ for a year, starting with the Greater Manchester initiative and spreading to other large cities. It is now, however, clear that the transfer of spending and related functions – more accurately described as decentralisation rather than devolution – will be much more extensive than originally thought. Some 38 submissions have been made, extending well beyond the big former metropolitan cities and counties in the North and the Midlands, and including a number of the shire districts and counties.

However, as my Institute for Government colleague Jo Casebourne has pointed out, there are big uncertainties and potential pitfalls, notably under the pressure of doing complicated deals at a rapid pace. Local authorities are unsure about what is on and off the table: the National Careers Service and the Work Programme are, for example, not up for negotiation. An analysis of 30 of the 38 submissions shows that economic development, skills, housing, transport, fiscal powers, public estate and health are, in order, mentioned in two-fifths or more. So the original focus on local economic growth and infrastructure remains, but there is increasing interest in taking control over public services. 

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There are two direct implications. First, as Simon Parker of the New Local Government Network argues in his stimulating new book Taking Power Back, “localism also represents a threat to vested national interests: more power for Manchester is less for ministers and civil servants. Nervous civil servants could still snuff out the new city-states tomorrow”. Second, the more that is decentralised, especially in the areas of health and economic development, the less there can be said to be national policies applicable everywhere in England. The principle of free-at-the-point-of-use health services may apply everywhere, but the priorities may differ, probably in a complicated, asymmetrical pattern.

The Treasury is in the driving seat in this process, not least with the Spending Review under way. But that is just the start. It is important that the Treasury stays involved in the implementation phase or else there is the risk of agreements being watered down. There needs to be clear leadership from within Whitehall – not just DCLG but also the Treasury. Similarly, there needs to be greater clarity about criteria and principles involved over the distribution of powers and funding, structures and relationships.

 There also needs to be more joining up across Whitehall. Since the abolition of the Government Offices of the regions, central government’s relations with cities are more loosely organised. And there is insufficient co-ordination between England and among the nations of the UK (where, at least, there is better co-ordination of devolution issues by the revamped UK governance unit in the Cabinet Office). But, apart from the vexed issues of Evel (English votes for English laws), there is little linkage between England and the rest of the UK.

The chancellor took his plans even further in his party conference speech by announcing that councils would fully benefit from the growth in their business rates. At present the £26bn in business rates are collected by local councils, with some retained by them and the rest redistributed by the Treasury in the form of direct grants. These will be gradually phased out. In future, councils will keep all the real growth in revenue as income from business rates rises, providing an incentive to attract new businesses, helping some areas more than others.

The new freedoms will be limited. While all councils will be able to cut business rates as much as they like, only those with directly elected mayors will be able to increase them by a modest amount (a likely cap of 2p on the rate), provided they have the support of local business leaders through a majority vote of the business members of the Local Enterprise Partnership.

All these changes are, however, in the context of less money. The Institute for Fiscal Studies recently estimated that the central government grant to local authorities may fall by more than 27% in real terms between 2015-16 and 2019-20, the largest for any budget. However, councils can raise revenue from council tax and the now partially liberated business rates, which are expected by the IfS to rise in real terms over the parliament. This will mean that the spending power of local authorities will be cut by less than 27%, but it will still fall substantially. Hence the recognition of the need to reorganise, to merge administrative functions with neighbouring authorities and to find new ways of delivering services. That is the real impetus for the new localism.

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