IFG - Politicians should devolve power to local authorities

26 Mar 2015 01:15 PM

New IEA paper calls for greater devolution and fiscal decentralisation

 

Recent proposals to balance the share of power across the UK are flawed. ‘English Votes for English Measures’, the creation of an English Parliament and other suggested reforms would see power split unequally whilst failing to decentralise fiscal responsibility. As such they would undermine the potential economic benefits of greater devolution.

‘English Votes for English Measures’ would widen the scope of MP’s responsibilities even further. Currently, Members of Parliament find themselves torn between holding government to account while working towards political promotion. Devolution would better allow them to concentrate on the essentials of national government.

In Slicing up the public sector: A radical proposal for devolution, Tom Packer and Matthew Sinclair outline the benefits of devolving power from Westminster. While some responsibilities should remain with central government, considerable scope exists for devolving most other policy areas to local authorities.

Providing local authorities with the power to raise and spend their own revenue would encourage them to make better use of taxpayers’ money, and moving decision making on policy areas such as health, welfare and the environment closer to those affected would dramatically improve accountability. Care must be taken, however, to ensure devolution does not create additional layers of burdensome regulation, undermining any potential economic gains.

Allowing local governments to experiment with policies in order to test their effectiveness would also result in better government. An example of this is the adoption of an initiative allowing residents to view all items of government expenditure costing over £500, originally implemented by The Royal Borough of Windsor and Maidenhead in 2009.

Proposals for devolution:

• Taxation – Expecting local authorities to raise the revenue they spend would make voters more aware of how their money is being spent. This could be done through taxing incomes or revenues from natural resources. In order to protect individuals from excessive regional tax increases, any tax rise over a certain threshold should be approved by local voters.

• Health – Devolving power over healthcare would mean local authorities would have greater freedom to innovate and respond to local conditions. Switzerland’s highly decentralised healthcare system provides a responsive service with strong patient satisfaction and high life expectancy. Giving devolved governments discretion over public health regulation would allow voters to live in areas that better match their lifestyle preferences.

• Welfare – Providing local governments with greater flexibility over welfare policy could significantly reduce welfare dependency in the UK. National government might still be required to provide funding for pensions due to the scale of unfunded spending commitments.

• Environmental policy – Considerable decentralisation of environmental policy already exists in the UK. Local authorities are far better placed to manage environmental concerns if they are in close proximity to the individuals affected.

• Borrowing - Although local authorities would be allowed to borrow in order to finance spending under certain conditions, Westminster would remain responsible for existing national debt, placing reasonable restrictions on regional borrowing.

Commenting on the research, Professor Philip Booth, Editorial and Programme Director at the Institute of Economic Affairs, said:

“The UK has much to gain from devolution. Local governments will be far more responsive to the needs of their voters if they have to raise taxation themselves and are responsibile for the delivery of public services currently provided by central government. Policy outcomes would also be better because it would allow for greater experimentation and responsiveness to local preferences. Fiscal decentralisation would also see a reduction in wasteful spending as regional powers would be under constant scrutiny from the taxpayer.”

Notes to Editors:

To arrange an interview about the report please contact Camilla Goodwin, Communications Officer:cgoodwin@iea.org.uk or 07821 971 443.

The full report, Slicing up the public sector: A radical proposal for devolution by Tom Packer and Matthew Sinclair can be downloaded here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.