The government came to power promising a “devolution revolution”. Its efforts so far have fallen well short of this objective. There has been a modest enhancement of existing spending powers for local leaders. But even once enacted, this would still leave the UK as the most centralised country in the western world.
British devolution remains half a loaf, half-baked. Half-baked because even the most empowered local leader still controls only a fraction of their local spending. And half a loaf because there has been almost no meaningful devolution to local leaders of powers over taxation and financing, so-called fiscal devolution.
In her Mais lecture in March, the chancellor, Rachel Reeves, promised a roadmap for limited fiscal devolution in the autumn, for example through sharing income tax. While welcome, this approach and timetable lack the ambition and speed necessary to free the hands of local leaders to unlock growth in the UK’s regions and nations, without which national growth will remain a pipe dream.
Doing so requires a radical reversal of the central-local power balance. Instead of bidding for powers from a set menu imposed from the centre, local leaders should be able to choose à la carte what powers they need to stimulate growth, subject to strengthened accountability. As well as freeing local leaders’ hands to innovate in their models of public service provision, this could transform the investment landscape for local areas.
Much of the UK’s infrastructure was originally financed at the city level using long-term municipal bonds. Once local leaders have the power to levy and retain taxes, they will be able once more to issue these securities against future tax receipts to finance the long-term investment in local infrastructure needed to stimulate growth.
The investment gap to be filled here is a massive one, estimated at around £2tn – and the investment gap is largest outside the south-east of England, where central money has failed to flow in the past, despite the larger social returns. With full-fat fiscal devolution, local leaders would be able to tap a vast pool of capital to meet these needs, including the £6tn locked up in domestic pension funds.
Andy Haldane is a former chief economist of the Bank of England
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