‘Devolution: why it matters and how it will be a success’

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Manchester tram - Devolution

James Sproule reflects on a survey of IoD members that reveals a desire to see greater devolution in areas such as transport, education and skills

Devolution is likely to be one of those slightly technical issues that ends up mattering a lot more than you might imagine. For chancellor George Osborne, faced with the task of matching spending with a sustainable level of revenues, devolution is a great opportunity.

Reducing spending, however necessary, is often painful. But the greater the local control over expenditure, the more that such spending can reflect the most immediate priorities and – at least in theory – lessen the pain spending cuts will cause. 

In a recent Policy Voice survey we asked IoD members their views on devolution. In general, the results were unsurprising: two-thirds of those surveyed agreed with the plans to devolve additional powers to cities and sub-national regions and almost as many people (58 per cent) supported the idea of introducing directly elected mayors in return for receiving additional powers. There was a desire to see greater devolution in areas such as transport, education and skills, as well as housing and planning. All areas on the devolution hit list.

On tax, IoD members again took a pragmatic approach. There was a desire to see business rates and council tax devolved and retained locally, (these raised jointly £59bn in 2014) but an appreciation that VAT, national insurance, income and corporation tax (£465bn) were more naturally national taxes. Stamp duty was the exception (£16bn), where members’ views were genuinely mixed on the desirability of it being retained nationally or devolved.

It was unclear if this simply reflects a desire of IoD members in the south-east, where a disproportionate amount of the stamp duty is raised to keep more money for local projects or represents a more general wish to see local taxes and spending more closely aligned.

Members were concerned that devolution could lead to more complex, and higher, local taxation. This is a realistic fear. Where local politicians do not have responsibility for raising taxes, they all too often simply compete to spend money. 

Three things have to happen in order to make devolution a success:

Devolution has to lead to local accountability, with politicians accepting this and, equally critically, electors holding the right person responsible. No politician will ever devolve the privilege of policymaking if they ultimately remain accountable in the eyes of voters. The reason that so much power has been centralised is that central government (rightly) distrusted local government, and local authorities did little to allay the fear that they were happy to carry on regardless of cost, blaming Westminster for any shortfall.

Critical to effective devolution is the ability and responsibility to raise taxes. Nothing brings home the necessity to seek value for money more than the realisation that one has to pay the political cost of raising the money in the first place. 

Effective devolution will result in varied outcomes. This may be obvious, but in media terms this can be labelled as a ‘postcode lottery’.

Our view is that differing outcomes are exactly what more devolution will almost invariably mean. Such differences are a reflection of differing priorities and a price well worth paying for progress.

@jamesrsproule

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About author

James Sproule

James Sproule

James Sproule has been Chief Economist and Director of Policy for the Institute of Directors since January 2014. Prior to joining the IoD James led Accenture’s UK Research and Global Capital Markets Research. He started his financial career as a merchant bank economist working with both Bankers Trust, Deutsche Bank and Dresdner Kleinwort, and eventually helped to found the boutique bank Augusta and Company.

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