Policy Bites: Devolution: Evolution or Revolution?
Posted by Editor
On 28 January the Cities and Local Government Devolution Act received Royal Assent, marking an important step forward in our very British process of devolution. We in the West Midlands will now use it to create our Combined Authority and implement the proposed devolution deal we signed last November.
It’s worth remembering that Britain is one of the most centralised countries in Europe (second only to Albania according to some), but the process of putting that right is clearly going to be more of an evolution than a revolution. Not for us the sweeping introduction of new structures of local government across the board seen in France or the neat federal constitution of Germany.
Instead, the Act is what those in Whitehall call an “enabling measure”. It allows the Secretary of State to devolve any function to any local area and to create combined authorities and new “metro mayors” with additional powers. But it does not define what these powers should be, nor the geographical areas that will receive them. It does not make devolution happen. It is a form of legislation designed to support what might be seen as a peculiarly English approach to policy making: the agreement of deals between the government and local areas.
Nonetheless, in theory, this should give us the freedom to develop our own approach to devolution and allow local government as a whole to drive the agenda. We said that the first West Midlands deal would open the door to an ongoing dialogue and that has, indeed, proved to be the case. The Government is already talking to us about further deals and we expect some announcements in the March Budget and the Autumn Statement later in the year.
But in reality the devolution deals agreed so far have tended to look fairly similar and there are some fairly strong walls around the places that government will not let us go at the moment. That is the downside of an enabling approach – it does appear to leave the government very much in the driving seat and determining the pace and direction of change, with local areas appearing to be as much reactive as proactive as they jump when asked for new ideas and engaging in a glorified bidding process. As one of our Combined Authority Chief Executives regularly puts it, we are like kittens chasing a flashing light … so we need to get more control of the torch.
What we need is a fully worked through strategic approach to devolution looking ahead to 2020 and well beyond. In the West Midlands, therefore, we have set up a devolution strategy group to enable us to plan future deals and to lobby more effectively for a more radical approach from the government. We aim to develop a West Midlands model of devolution, not follow a standard blueprint.
Whilst taking a much more long-term approach, we must also look now at how combined authorities and mayors can engage more effectively with local communities and how we can link together the different levels of city governance and the two themes of public service reform and economic growth. We can also develop a distinct approach through our work across the three Local Enterprise Partnerships.
Birmingham can play a big part in developing this new model, not least in our thinking on the very local level, with the forthcoming changes to our wards and the potential for many more neighbourhood councils following the creation of the Sutton Coldfield Town Council. Who knows, but this might see us developing local devolution agreements with neighbourhoods within Birmingham.
But the biggest wall we need to break down is the one around the whole agenda of “fiscal devolution”. To put it bluntly, there can be no real devolution without true local control of taxation and more freedom on how public money can be spent. Tax set at a sub-national level in the UK is equivalent to just 2.5% of GDP, compared with 15.9% in Sweden, 10.9% in Germany and 5.8% in France.
Even with the re-localisation of all business rates from 2020 we will not have control over the level of rates and we will still not be free to set the council tax rate, to adjust the bands to suit local needs, or to levy a Supplementary Business Rate above 2%. We also need to look at other areas of taxation taken for granted in other countries, such as hotel taxes, and explore the options for localising other taxes such as Stamp Duty or Vehicle Excise Duty. And we need greater freedoms to use these sources of income to borrow and invest.
The devolution debate so far has concerned the localisation of functions. Opening up the fiscal devolution box would support a strategy that gives us genuine freedom to design local investment programmes and local public services to better meet the needs of local people and local businesses.
During the year ahead the Government is seeking to engage with local government about how the post 2020 system will work. We must make sure that debate is not just a narrow discussion of business rates, tariffs, top ups and incentives for house building. We must insist that the finance system supports a vision for real devolution – a revolution not an evolution. And we must make sure that Birmingham and the West Midlands play a leading role in that debate.