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Let's be consistent about devolution Matthew Warburton - 16/05/2013

Europe_300This week saw another call for debt caps on council borrowing to be removed, this time from the London Finance Commission, established last year by Boris Johnson to look independently at the financing of London government and make recommendations for its future. It comes among recommendations for extensive reform of London government finance and taxation including full control of council tax and non-domestic rates.

Chaired by the doyen of local government finance experts, Tony Travers of the London School of Economics, the Commission found a "clear and unanimous" message from a wide range of sources that London's government "needs to be given more freedom to determine and use the resources raised from taxpayers". 

To realise its full potential, the city needs to plan for a population likely to grow to 10 million by 2030 and needing new railways, schools, homes, waste facilities and streets. Relying for separate decisions on these from a multitude of Whitehall departments each with its own agenda will hold back economic growth. Compared with other major cities, says the Commission, London is an extreme outlier in retaining only 7 per cent of the all the tax paid by London residents and businesses. The equivalent figure for New York is over half.

As the Commission acknowledges, a similar case could be made for financial reform in the other city-regions of England. These arguments are not new: local government finance reform has been on the political agenda almost continuously since the 1980s, when abolition of the rating system led to the poll tax for households alongside the nationalisation of control over business rates.

The poll tax was soon replaced but business taxation has never been returned to local control. A commitment to look at the issue appeared in Labour's 1997 election manifesto, leading eventually to the establishment of the Lyons Inquiry into the future of local government, which in 2007 made some fairly modest recommendations for devolution for local taxation powers, with no result.

Opposition parties lost no time in denouncing what they saw as Labour's ingrained centralism, with the Liberal Democrats calling for a Local Income Tax and prominent Conservatives supporting relocalisation of business rates.

Cynics use local government finance to illustrate their conviction that all parties are localist in opposition and centralising once elected to government. Despite campaigning on a localist ticket and even passing a Localism Act, the Coalition partners have so far used the overriding priority of reducing the deficit to reject relaxation of council debt caps, and will most likely reject the London Finance Commission's recommendations on the same grounds. But there is one new issue that they might want to think about first.

The big news story this week was not the London Finance Commission but the prospect of a referendum on EU membership. Subsidiarity is an unwieldy word invented by the EU to describe the important principle that powers to decide and act should be devolved to the lowest appropriate level - which is precisely the basis on which prominent members of the government are arguing for the devolution of powers from Europe back to the UK Parliament. 

To invoke the principle in relation to EU/UK relations but ignore or deny its force in relation to central/local government relations could easily be construed as hypocrisy. In the brief period when David Miliband was Labour's Cabinet member responsible for the issue, he proposed a deal to local government - a "double devolution" in which powers would be devolved to councils if and only if councils themselves were willing to devolve more power and involvement to local people and communities. 

It was a deal councils were bound to accept to avoid looking as though their only ambition was grabbing more power for themselves. How ironic it would be if the EU's response to Britain's bid to renegotiate the treaty were the same - devolution of power and freedom to the British Parliament only along with more power and freedom for Britain's cities and councils.

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