Devolve budgets to local councils
Author: The Guardian |
By Simon Jenkins and Tony Travers
Another shadow chancellor promises to rescue the nation’s finances by “a radical reform in delivering public services”. A thousand heads hit the breakfast table with a clunk. Come back Ted Heath, Margaret Thatcher, Tony Blair, not to mention Burke, Baldwin and Churchill. They all said it and probably meant it at the time. Nothing in politics is more seductive than smaller-government rhetoric and pledges to cut waste. Nobody does it. Brown’s “Gershon cuts” spent £9m on consultants.
Scratch the surface of George Osborne’s speech this week and it amounted to little more than a few cancelled computers and more heavily discredited privatisation. The idea that a group of politicians who have never run anything might now succeed where all their elders and betters have failed is implausible. Everyone knows that public spending is cut by cutting functions, not pretending to cut waste.
Osborne has bravely forecast that a Tory first year in office would be hell. The nation’s finances must return to shape with Labour howling “Tory cuts” from the start. The bogey of hard-edged Thatcherism will return to blight the party through to the following election,at which Cameron must demonstrate extreme economic competence to win.
There is a way. Cameron can deflect the cuts charge and shed at least some of the blame for public sector parsimony by really doing what he says he will do, and devolve marginal decisions over public spending. He should guarantee a minimum of public welfare out of central state coffers, whether for such nationalised services as health, transport or social benefits, or for such local ones as schools, police, social services and culture. He must accept the public’s expectation of equitable national standards.
But the Tories should leave local democracy free, as it is across most of Europe and North America, to decide how far such welfare should be topped up locally – and free to tax itself accordingly. It should be free to rebuild one more local school or hospital, free to recruit extra police, free to expand a playground, museum or park. He should end the central capping of local council taxes and business rates and the huge bureaucracy that goes with it. This he has so far refused to do.
Underpinning such devolution would be two principles. The first is true delegation of responsibility. Ending central targets would liberate local councils, and their electors, to experiment at the margin. The great lie of the British public sector is that central government is more efficient than local; unproven by any statistic. Central government schools, such as academies, are between two and five times more expensive than local ones. The centralisation of examinations, of the courts and of crown prosecution has sent costs soaring.
The other principle is that devolution must not disadvantage poorer areas. This involves the redistribution of local revenue between rich and poor councils, as took place before Thatcher’s rate capping in the mid-1980s. It determines the subventions to Scotland, Wales and Northern Ireland and is common practice in localised regimes across Europe.
Cameron is terrified of decentralising power to local people. Like Osborne, he has been brought up in the corridors of Whitehall and feels in his bones that all wisdom in government resides there. He fears “postcode lotteries”, local options and local experiments. He ignores all evidence from abroad that innovation in public administration is almost invariably local. Central agencies “spend up to the cap” and take no risks. As the government’s own 2004 “balance of funding” survey of European taxation showed, voters accept variations in local service provided they voted for it. Ask the Scandinavians.
So far, Cameron’s localist pledges have been airy platitudes. He has promised more plebiscites on elected mayors (as did Blair) and on cap-busting local tax increases (as floated by Michael Heseltine in 1984). But there is to be no return to the pre-Thatcher era of local fiscal discretion, no restoring the link between councils and enterprise through the business rate, no escape from the target culture that is inevitable with central subsidy. Cameron remains, with Brown, at the extreme centralist end of Europe’s political spectrum.
There is now a powerful incentive to shift. As Osborne constantly reminds us, Cameron faces the necessity for cuts in central spending coupled with likely higher taxes. But there is a choice in both areas. Cuts and tax increases can be executed by the cabinet, or by local councils. In the latter case, Cameron can shed much of the blame, if not all.
Throughout Europe and North America, provincial and municipal authorities enjoy a local discretion that has all but vanished in Britain, which Cameron is refusing to restore. They raise and spend a far higher proportion of public finance than in Britain, where the proportion even of local spending financed locally has dwindled from 60%before rate-capping to 26%today.
It is strongly in the Treasury’s interest to push this balance into reverse, to make local taxes genuinely buoyant. Devolution to leftwing governments in Scotland and Wales has led to higher public spending, for instance on universities and health charges. But the political cost of this discretion has been paid in Edinburgh and Cardiff, not at Westminster.
Cameron could go further than just uncapping council tax. He could allow councils to introduce new imposts, such as on sales, traffic, tourism, planning and even incomes. New local taxes have the advantage over central ones in being conspicuous and thus accountable. They would bite. But Cameron would not be raising them, only making them available.
Thus a small local income tax would enable councils to make a big cut in their property based tax, as Sir Kenneth Calman recently proposed to the Scottish parliament in a report partly commissioned by the Scottish Tories. In the first year, councils have their direct grant from the Treasury replaced by the equivalent of the yield of, say, 4p in the pound from their income-tax payers. Individuals would see no change in their tax payment in year one.
In succeeding years councils could put that 4p up or down at their discretion, the revenue being subject to a Treasury equalisation formula. Such equalised local income tax exists in Scandinavia and America, without incurring any revolution. By most European standards it is not fiscally radical.
For Cameron the gains from such a reform (with or without local income tax) are manifold. Local politics would take some of the pressure of rising expectations. Councils could no longer complain about central interference, league tables and challenge funding. The government would be relieved of blame for every penny rise in council tax.
The Tories would derive other benefits. Conservative councils on average set lower tax levels than Labour or Liberal Democrat ones. Ending the cap should increase this accountability, giving councils an added incentive to save money. This should activate local Tories and help their councils avoid the mid-term meltdown experienced last May by Labour ones.
In such matters, timing is all. The removal of capping requires no statute,but would need an emphatic manifesto commitment to overcome Osborne archaeo-centralism at the Treasury. Adjusting to the new regime would take two years, but could begin to show results by the local elections of 2012. That is in good time for a 2014 election, when Cameron will sorely need something to boast about.