Paul Hackett, director of The Smith Institute, in Public Finance in February 2014
Labour’s support for localism continues to gain momentum and was given a further push last week when Hilary Benn, the shadow secretary of state for communities and local government, called for a new English deal based on greater financial devolution.
At the launch of the new Smith Institute report on ‘Labour and Localism’ Benn said the case for decentralisation was now ‘overwhelming’ and that ‘money, and the power that goes with it, needs to be moved out of Whitehall and down to communities’. This sentiment was echoed in the institute’s report, which includes essays on local government reform by Labour council leaders and MPs.
With Labour dominating most of the big cities and hoping to do well in the forthcoming local elections, there is a growing feeling that the shadow team now get’s localism and sees it as integral to the party’s evolving narrative around reforming the state and rebuilding the economy.
Whilst it is true that Labour has traditionally talked up the English devolution story in opposition, often only to disappoint in government, there seems to be more than just mood music to the latest pronouncements from Ed Miliband about giving power back to local people and local councils.
This is re-enforced by the success of the Greater Manchester Combined Authority and the roll out of the city-regions concept to other Labour cities, such as Leeds, Sheffield, Liverpool and Newcastle. Richard Leese, leader of Manchester City Council, talks in passionate terms about dynamic economic geography based on sub-regions and comments in the Smith report that ‘the last Labour government took ten years to realise that it could not achieve its objectives through centralised, compartmentalised, nationally imposed programmes. We mustn’t make the same mistake again’.
As we move out of the depths of recession, Labour seems prepared to embrace a more asymmetrical system of government, with different powers transferred down to different councils at different times.
There’s still plenty of anger about the cuts in funding and the way fiscal austerity is disproportionately hurting those councils with the greatest need; and there’s plenty of concern across the party about postcode lotteries, the lack of co-terminosity in many places and arguably too many local agencies (like the Local Enterprise Partnerships) competing with each other. But many are now talking openly about a new more joined-up, place-based localist future and letting a thousand local flowers bloom.
The view from the majority of newly elected Labour MPs (many of them former councillors) is that the party’s past centralist tendencies are unpopular, unfair and unsuited to the new economy. There is also a realisation that any incoming Labour government will face a very tough inheritance and that distributing funding on a fairer basis will be difficult and expensive.
The authors in the report nevertheless argue that the current funding system has reached the limit of its capacity and needs more than just tinkering. That might not translate immediately into anything quite as far reaching as the local tax reform proposals in Boris Johnson’s London Finance Commission, but the idea of city local government having much greater financial self-determination and accountability is taking hold in the Labour ranks – even if business is opposed to local rate setting.
According to shadow local government minister Andy Sawford, Labour is embracing the power of localism and will radically change the way in which public money is raised and spent locally. Clive Betts, the Labour chair of the CLG select committee, claims there is no turning back and envisages a future under Labour where councils have much greater income-raising powers and much more freedom to borrow. He says that a proportion of the national tax take should go to local authorities by right, and not at the whim of the Chancellor.
Labour’s policy reviews are wrestling with the pros and cons of reconfiguring the relationship between central and local government and forming a new financial settlement. That won’t be easy, especially when so many Labour areas have a relatively weak capacity to raise taxes and are heavily reliant on central government to meet the (growing) demand for services. There are also limits to how far local taxes and charges can replace local grant, and reduce the common pot for equalisation.
The labyrinthine system of local government finance doesn’t help, but the elephant in the room is economic geography and uneven economic development, which is getting worse as London races ahead as Europe’s leading global city.
Labour wants financial devolution, but not to enable Westminster City Council (which raises almost as much in business rates as all the eight core cities combined) to declare total financial independence! The Labour leadership will also have to think long and hard about reforming council tax and maybe embarking on an England-wide property revaluation, which is long overdue (the last rebanding was in 1991) but could cause financial pain for large numbers of homeowners and cost votes.
Many Labour council leaders acknowledge what has been achieved so far on a cross-party basis, but want a distinctive Labour localist settlement which goes far beyond the piecemeal approach advocated by the coalition and practised by the previous government. In place of policy triangulation the call from some quarters is for radical constitutional and financial change, with the Local Government Association taking responsibility for distributing government grant (as happens in Denmark) and cities having control over a range of property taxes.
How far will Labour go towards meeting the ambitions of Labour councils is still unclear. What is becoming more certain though is that Ed Miliband is going to have to offer them a lot more than his predecessors if he wants to present his party as the new localists.
This article was first published in Public Finance, 3 February 2014 and can be found here