Can Reeves’ fiscal devolution plans defeat the Nimbys?
Rachel Reeves plans to end the paradox of British politics whereby local people bear the costs of growth but rarely feel the benefits. Will it work? Asks John Oxley
Rachel Reeves attracts many descriptions, but few would peg her as a revolutionary. Her new plan for the economic landscape of the country might change this. In her Mais lecture this week, the Chancellor hinted at a radical restructuring of the way the British state operates, especially in England, with a preliminary roadmap towards fiscal devolution.
The UK is one of the most centralised states in the OECD. This is particularly true of how money is raised and spent. Council tax and business rates are our only true local tax, and even that is insufficient to meet local authorities’ needs. Instead, the Treasury engages in massive redistribution between regions. London and its surrounding areas are really the only net contributors, the rest of the country receiving the largesse from our Southeast-centric economy.
Under Reeves’ plan, this will change slightly. City and regional mayors will get to keep some of the tax returns that result from higher growth. This doesn’t end the subsidy but changes the dynamic. For a long time, local areas have rarely felt the direct benefit of building their economies. Now they will have more to spend on services and investment when they start to boom.
The hope is that this will make local people, and government, more enthusiastic about the steps needed to build the economy. At present, an odd dilemma exists. Local people bear the brunt of the cost of growth; the disruption of building, increased traffic, more pressure on services. The results, however, feel distant and disparate, lost in the ether of GDP projections no one quite notices or understands. As a system, it is the perfect incubator for Nimbyism.
Tax receipts in local coffers
Fiscal devolution aims to change this. With tax receipts going into local coffers, there will be an incentive to push past the downsides and embrace the positives. In an ideal world, regions will compete to become the most pro-growth and reinvest the proceeds into a virtuous cycle of progress. Doing so should not just benefit them, but the whole economy – moving from a surging London and left-behind regions to a Britain where each area is hitting its potential.
The question is how well the plan will hold up, and whether it will deliver. Our centralism is not entirely by accident. Westminster is a jealous hoarder of power, and the Treasury especially careful about spending rationales. They are sceptical about how local authorities spend their money. This is not entirely unfounded, with numerous councils worsening their financial situation in recent decades by ploughing money into ill-advised investment schemes.
The British public are also wary. We baulk at the idea of postcode lotteries and are not natural enthusiasts for competition between regions. This also raises questions of fairness. Retaining the benefits of a boom is great for places that achieve it. Those that don’t are often the ones with the biggest challenges, and they may find the Treasury less willing to help in future. You can perhaps make a new London out of a Birmingham or a Manchester, you are unlikely to do so with a Lincolnshire.
Moreover, this approach remains a tax-and-spend led plan. The ultimate devolution is not to lower layers of government, but to the people themselves.
John Oxley is a political commentator