In Rachel Reeves’ New Economic Model for Britain, how much power is HM Treasury prepared to devolve?

We don’t yet have the policy detail, but I suspect this will become one of the debating grounds in local government policy circles – and one where the Liberal Democrats and Labour may have very different proposals.

You can read the Shadow Chancellor’s proposals here

It’s more of an art than a science when it comes to writing a policy pamphlet that is both accessible to the general reader while at the same time goes into enough detail to deal with the main concerns that public policy specialists might have. There is no right answer. In one sense this publication reflects that challenge.

“A Taking back control Bill” – a proposed piece of legislation from Sir Keir Starmer

Legal blogger David Allen Green unpicks the issues here, and ultimately returns to the central pillar of the post-war democracies: You can either have a state with a written constitution, or you can have a sovereign parliament that can legislate on whatever it wants. You cannot have both at the same time.

Which brings us to the devolution of powers issue: In countries with written constitutions, the nationwide/federal level of government is restricted in what it can and cannot order regional and local tiers of the state to do. in the UK system where Parliament is sovereign, all ministers need to do is to table a new piece of legislation in Parliament for its approval. When the government of the day has a large majority in the House of Commons, in principle this is a relatively straight-forward task. Even more so if what is being legislated upon is a commitment included in an election-winning manifesto.

Combined authorities are only a very partially-devolved tier of government – dependent primarily on grants made available by ministers as and when they choose.

This creates a model and culture of lower tiers of the state constantly looking out for the next set of crumbs that The Treasury is willing to allow ministers to hand out to the lower tiers. The big question that the Shadow Cabinet will have to answer is:

“To what extent is it willing to revamp the model of how local councils are funded?”

That’s the same question that the House of Commons select committee responsible for scrutinising local government policy (LUHC/DCLG/Watch-this-space) concluded in their 2021 report into local council finances.

Labour has two major options.

  1. Do what Tony Blair and Gordon Brown did, which was to turn on the central government grant funding taps (esp post 2001) while putting in place reporting mechanisms to central government to ensure funds were being spent properly.
  2. Overhaul local government, provide it with strengthened powers to make more revenue-raising decisions and spending decisions without having to seek ministerial approval – and instead require the elected decision-makers (whether executive mayors or council leaders) to seek approval from strengthened & improved full councils – ones that would require voting reform to reduce the chances of ‘super-majorities’ (where over two-thirds of council seats end up with one political party, reducing the power of scrutiny by opposition parties).

The case of 1) was brilliantly satirised in Yes, Prime Minister.

The second one is much harder to do under our present system because giving local councils much greater powers to raise revenue through a wider range of taxes is something that a future government can, via Parliament with a large party majority, easily take away.

Lisa Nandy MP hints at local areas being able to ask for powers, and central government having to explain ‘why not’ if refused under a new Taking Back Control Bill.

Have a listen to Ms Nandy’s speech to the Institute for Government on 17 Jan 2023 here – in particular from 470 seconds in.

The list of powers that read out included:

  • Employment
  • Skills
  • Housing
  • Rail
  • Trams
  • Buses
  • The right to drive major infrastructure projects

Which sounds great from a Cambridge Connect Light Rail perspective!

But then I come back to the problem of the existing Combined Authority not being fit for purpose to make it (or anything else happen!) without ministerial approval. So we come back to the “options 1 or 2?” question again: will a future Labour Government keep the existing combined authority structures in place, or will they be willing to overhaul them and local government generally as part of their legislative programme? This in a nutshell is the question that the Public Administration & Constitutional Affairs Select Committee put not just to the government but to all party leaders on 31 Oct 2022 in its appeal for political support in establishing a cross-party commission on the Governance of England – one I strongly support and made the case for at the recent local elections and to a public debate in Queen Edith’s in late April 2023 – you can watch the video clip here.

One of the tests for Labour’s proposals is whether the powers and policies they intend on bringing in will be flexible enough to meet the needs of Cambridge’s economic sub-region, and of Peterborough & Fenland’s economic sub-region – both of which have strikingly different challenges. The former is dealing with international property bubbles on science parks and on housing. The latter is dealing with the complete opposite – the lack of private sector investment to provide the higher paying jobs that can help sustain the local economy.

An overhauled governance system should enable a Great Cambridge Unitary to tax the bubbles to pay for at least some of the much-needed infrastructure, while at the same time enabling central government to provide the infrastructure funding to a Great Peterborough Unitary that it cannot raise from its local economy alone. For whatever reason, we seem to have achieved (in the mind of the county) a situation where Cambridge is seen to be getting the big transport funding grants and Peterborough is not.

“What does success look like?”

Ms Nandy mentioned research by the University of Cambridge that was picked up in Michael Gove’s Levelling Up White Paper – the six capitals.

“This ambitious framework requires measurement of access to six types of economic assets that add up to what is known as comprehensive wealth of the nation.

  1. Physical assets and produced capital, including access to infrastructure and to new technologies
  2. Net financial capital
  3. Natural capital, the resources and services provided by nature
  4. Intangible assets such as intellectual property and data
  5. Human capital, the accumulated skills and the physical and mental health of individuals
  6. Social and institutional capital

Above – from Measuring Wealth, Delivering Prosperity, July 2019 Furthermore, You can read more about the measures of wealth here.

It speaks volumes of the present government that the main opposition party has to state clearly the importance of certainty and stability in economic policy

She Shadow Chancellor does not pull her political punches:

“The chaos of 2022, with three Prime Ministers and four Chancellors in a matter of months, may have been unparalleled, but it speaks to a wider truth. In the past thirteen years, seven different growth plans have come and gone, with industrial strategies launched and dumped along the way. New policy agendas, which demand time and commitment, have been announced and abandoned on a whim.”

Reeves, R (2023) p23

And she’s spot on. Why would any business invest if a change of Government policy suddenly means that their investment suddenly becomes unviable financially? This could be due to changes in proposed tax rates that affect businesses, to the cancelling of parts of large infrastructure projects, or the delaying of important pieces of legislation that set new regulatory standards in a particular market.

An important role for trade unions

“Labour will revive the Industrial Strategy Council – disbanded by this Conservative government – to oversee this work. This group will draw together employers, trade unions and universities. And it won’t just be reinstituted, it will be placed on a statutory footing, creating plans that survive the political cycle and allow businesses to take long-term decisions about their future direction.”

Reeves, R (2023) p24

As a former trade union branch organiser this commitment is one I welcome – because it brings the debate on working conditions to a much higher level – especially on things like mental health and bullying in the workplace, both of which have been in the news regularly in recent years. The troubles at the CBI that were exposed recently only underlined how widespread the problems are in the workplace.

Balancing the burden of taxation – away from small firms and towards larger ones

In a nutshell, the present system of business rates will go under Labour’s proposals.

“High street businesses…comprise 15% of our economy and yet pay over a third of the UK’s business rates bill.”

Reeves, R (2023) p24

Which is an incredible statistic. Over 33% of the business rates bill coming from high street businesses in the face of the implosion of the high street and the collapse of so many famous brand names over the past couple of decades. That reflects a catastrophic failure of Government policy in failing to reform the system of business taxation. It’s not like the likes of UKUncut were not warning ministers with direct action protests in the early 2010s.

“Define capital investment”

This will be one of the areas where the devil will be in the detail. One of the reasons why speculative bubbles emerge is because the short term returns are ever so high. One of the other reasons why so much money (of varying levels of legality and origin!) has ended up coming into the UK housing & property market is because of the weak regulations and underfunded regulators – combined with lower levels of returns from investing in productive capital. This was in the news again very recently with the Mayor of London calling for powers to impose unlimited council tax bills on empty properties in Greater London given the huge housing crisis there. I can understand why he’s demanded this, because it’s one of the few policy levers that he has. Yet as I mentioned above, Parliament has already concluded that the system of financing councils is utterly broken and needs a major overhaul. This is where proponents of a land value tax can make their case, simply because expensive, empty properties would end up with such punitively high tax demands that it would literally be a case of use them or lose them.

My point remains: investment needs to go both into capital stock – and also into training and retraining our workforce for the emerging industries that we’ll need in order to meet the challenges of the climate emergency. Furthermore, the financial burdens of training and retraining our workforce cannot fall on an already highly indebted workforce. When we look at the essential jobs needed for our cities and societies to function, the costs of training are too high and the salaries are too low to enable people to make a living. We found out the hard way which are the essential functions that our villages, towns, and cities need in the event of a major civil emergency. We must find a way of making sure that those currently massively under-paid jobs are properly paid, rather than relying on a round of applause, medals, and gushing words from politicians and princes.

How do we find that way? That’s for a future blogpost. In the meantime, have a read about how to improve consultation and engaging with the public from 2014 here. Only the Greater Cambridge Partnership is due to publish the results of its big consultation in 24 hours time – alongside the proposed route of East West Rail’s entrance into Cambridge which is due out around the same time. As Smarter Cambridge Transport wrote in its retiring post, the GCP hasn’t exactly demonstrated best practice with its consultations during its existence.

Food for thought?

If you are interested in the longer term future of Cambridge, and on what happens at the local democracy meetings where decisions are made, feel free to:

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