On Fiscal Decentralisation
The UK is a well-known outlier in terms of its extreme centralisation, and particularly so in terms of its fiscal policy.
England is an outlier within this outlier, not least owing to recent changes that have taken place in the decision-making of the devolved nations, particularly following the Scottish independence referendum. Recent changes, under a faux-focus on localism, that have taken place in England have not brought about the decentralisation of power that was promised. And endless modifications to the lower levels of government over the past decades — including the introduction of new and mixed conglomerations of units of power, and layers of subnational control — form, at best, a long list of confusing acronyms.[2]
Successive governments have run on platforms of various kinds of decentralisation, and have usually managed to create further complications — not least by driving this supposed decentralisation firmly from the centre, rather than responding to naturally developed local areas, either in terms of economic geography, or the ties of cultural norms or social traditions. Fiscal policy is again a particular failing. Common to most of the recent supposed decentralisation projects has been the devolution of spending powers, but, where this has occurred, it has been in a highly controlled manner, involving the top-down allocation of centrally ringfenced budgets. Moreover, the power to raise taxes has remained very much at Westminster — particularly for England.
There are many strong arguments, backed up by international examples, for the increased economic efficiency and growth opportunities of genuine decentralisation. This is particularly the case when revenue-raising powers are devolved alongside spending powers; indeed, the uncoupling of the two has been shown to be more likely to result in worse economic consequences.[3] Classic arguments in favour of fiscal decentralisation suggest it leads to: more overall and local economic growth;[4] the better matching of services to local needs and preferences;[5] greater efficiency;[6] greater competition and the advantages of experimentation;[7] increased productivity;[8] and tax-base growth.[9] There are also further positive arguments specific to the current circumstances, including the way in which gains and innovation driven by tax competition between local areas would not only respond to the ‘take back control’ narrative of Brexit, but also contribute positively to the UK’s necessary effort to become more innovative and competitive in general.
While these economically-focused arguments are extremely strong, it is also the case that democracy has important value of varying kinds, too. Indeed, it is not even necessary for the case for decentralisation to be made on the basis of economic maximisation. Rather, it would suffice to base it on the principle of subsidiarity, as grounded in the value of individual freedom in an Aristotelian sense, rather than the EU’s misunderstanding of the term. Subsidiarity, to Aristotelians, is not limited by the need to provide ‘better’ or more ‘efficient’ services, as the EU would propose.[10] Rather, it is about justice and the common good, and the place of autonomy in the individual seeking of wellbeing. Along these lines, John Finnis defines subsidiarity as shorthand for ‘the principle that it is unjust for a higher authority to usurp the self-governing authority that lower authorities, acting in the service of their own members (groups and persons), rightly have over those members’.[11]
Proper localism, focused on autonomy as well as funding, and revenue-raising as well as spending, would provide an opportunity to increase people’s purchase on political decision-making. It would enable local knowledge to drive policy, and empower citizens in ways that are not only economically beneficial, but also practically realise the political rights that are at the heart of democracy.[12]
This article is an extract from a paper I wrote: https://www.freeruk.com/wp-content/uploads/2019/05/Why-Democracy-Taking-political-rights-seriously.pdf
[1] http://www.oecd.org/tax/federalism/fiscal-decentralisation-database.htm
[2] For an excellent summary, see D. M. Smith, and E. Wistrich,Devolution and Localism in England (Farnham: Ashgate, 2014).
[3] See, for instance, T. Packer, and M. Sinclair, ‘Slicing up the public sector: A radical proposal for devolution’ (London: Institute of Economic Affairs, 2015).
[4] See, for instance, N. Gemmell, R. Kneller, and I. Sanz, ‘Fiscal decentralisation and economic growth: spending versus revenue decentralization’ in Economic Inquiry, Vol. 51, Issue 4 (2013).
[5] See, for instance, C. Tiebout,‘A Pure Theory of Local Expenditures’ in Journal of Political Economy, Vol. 64 (1956).
[6] See, for instance, P. Booth, Federal Britain: The case for decentralisation(London, Institute of Economic Affairs, 2015).
[7] See, for instance, D. Carswell, ‘Paying for Localism: How to revive local democracy by replacing VAT with a Local Sales Tax’ (London: Adam Smith Institute, 2004).
[8] See, for instance, H. Blochliger, ‘Decentralisation and economic growth. Part 1. How fiscal federalism affects long-term development’ in Working Papers on Fiscal Federalism,14 (Paris: OECD, 2013).
[9] See, for instance, M. Sinclair, ‘Taxpayers for fiscal decentralisation’, in G. Norquist, (ed), A U-Turn on the Road to Serfdom, Occasional paper 150 (London: Institute of Economic Affairs, 2014).
[10] See, for instance, http://www.europarl.europa.eu/ftu/pdf/en/FTU_1.2.2.pdf.
[11] J. M. Finnis, ‘Subsidiarity’s Roots and History: Some Observations’ in The American Journal of Jurisprudence, Vol.61(1) (2016), p. 133.
[12] For further thoughts on this claim, see R. Lowe, ‘Why Democracy: Taking political rights seriously’ (London: FREER, 2019).
