Fiscal devolution key to economic recovery

The Local Government Association has said that additional financial freedoms would empower communities to help kickstart a national coronavirus economic recovery.

A new report by the Localis thinktank, commissioned and published by the Local Government Association, finds that - across the western world - local government has been able to react with greater power and autonomy to lead local communities through the crisis than in the UK.

The Fiscal devolution: Adopting an international approach report finds that local authorities in Germany, Switzerland and Holland can access a diverse range of revenue sources and are able to adjust and introduce local levies in consultation with their residents and businesses.

Council leaders want to work with the government on how its forthcoming Devolution and Recovery White Paper can explore options for greater fiscal freedom for local communities, including the power to raise more money locally, for example through a tourist or e-commerce levy, and have greater control over how national taxation is spent, such as income tax or a share of fuel duty to invest in roads.

Kevin Bentley, chairman of the LGA’s People and Places Board, said: “England is an outlier when it comes to fiscal devolution with international communities having much greater levels of financial freedom. As we look ahead towards the long process of economic and social recovery, this gap in local power and autonomy across England risks seeing our communities fall ever further behind.

“The forthcoming Devolution and Recovery White Paper expected is a real opportunity to do things differently. Councils want to work with the Government on how local communities can have the freedoms and flexibilities to play a lead role in the nation’s economic recovery and better connect local leaders to decisions made about how money is spent and raised for the benefit of their communities.”

Jonathan Werran, Localis chief executive, added: “There can be no genuine roadmap to future recovery and devolution without entrusting English local government with the freedom to use and choose locally-generated growth revenues to direct vital place-led priorities for economic and social reform.

“The examples Localis drew upon from the German federal system, the Dutch municipalities and the Swiss cantons neatly disprove the bogey-man argument that fiscal devolution should always lead to a ‘race to the bottom’ or an iniquitous postcode lottery. Far from it. The evidence suggests instead that without greater decentralisation of local government finance, the levelling up agenda will fail to provide either the targeted economic development support to rebalance regional economies or the social infrastructure to cement place prosperity.”