Why Rachel Reeves’ refusal to commit to fiscal devolution is disappointing - Simon Kaye

When in opposition, it’s easy to promise the earth. But these promises often struggle to survive the transition to government. Liberal Democrat voters will remember the pledges to abolish university tuition fees in the run-up to the election of 2010: promises which then proved impossible to deliver when the time came to govern.

This tendency to talk ambitiously when in opposition is also true for the realm of devolution. After all, it’s easy to say you want to give up power – in theory – and even to mean it. Right up until you find yourself accountable for taxpayers’ money, keen for direct control and influence over the things that voters care about.

The Labour Party’s recent history is a case in point. Sir Keir Starmer has promised a ‘take back control’ bill to empower communities and strengthen local government. Their last leader, Jeremy Corbyn, wanted to put the idea of a ‘federal’ model, with powers for English regions, “on the table”. Before him, Ed Miliband promised “historic new powers” to be decentralised from Whitehall and out to towns and cities.

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And of course, in practice, this radicalism is hard to sustain in government – even assuming that a leader of the opposition can get to the point of forming a government in the first place. Yet for all of Starmer’s seeming commitment to radical thinking when it comes to the redistribution of power across England, there is one area where the hopes of localists seem likely to be dashed, well before he gets close to Number 10.

Rachel Reeves, the Shadow Chancellor, said that there would be no new tax powers for councils: “we don’t have plans to give tax-raising powers to local authorities". PIC: DANIEL LEAL/AFP via Getty ImagesRachel Reeves, the Shadow Chancellor, said that there would be no new tax powers for councils: “we don’t have plans to give tax-raising powers to local authorities". PIC: DANIEL LEAL/AFP via Getty Images
Rachel Reeves, the Shadow Chancellor, said that there would be no new tax powers for councils: “we don’t have plans to give tax-raising powers to local authorities". PIC: DANIEL LEAL/AFP via Getty Images

Speaking to the Yorkshire Post a few days ago, Rachel Reeves, the Shadow Chancellor, said that there would be no new tax powers for councils: “we don’t have plans to give tax-raising powers to local authorities, and the tax burden is at a historical high”.

This places her at odds with many local leaders, including several from her own party. It also means Reeves is setting her face against the best available evidence. Many of us in the policy world, looking at how things are done in other countries, argue that fiscal devolution will be necessary to achieve ‘levelling up’ and promote local economic growth.

Globally speaking, the UK is one of the most centralised countries in the world. Practically no country of a similar size and complexity has a system where power, prosperity, and governance are as unequally distributed. London and the southeast see the bulk of private sector investment, sport the most productive economic ecosystems, enjoy disproportionate quantities of Arts council funding, more generous lending for businesses, more research funding, and more transport funding. Opportunities, life chances and health outcomes are strongly affected by these geographic disparities.

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The UK is a major outlier in terms of its centralisation, and particularly in terms of how centralised its system of taxation is. At the very most, in a given year, 8 per cent of tax revenue is raised by local rather than central government – compared to 29 per cent in Germany, or 50 per cent in Canada.

Until local places have the ability and resources to design their own approaches, in close collaboration with the communities that best understand local needs and assets, then the mission to rebalance or ‘level up’ this country will always be a long shot: a series of centrally accountable targets and centrally managed pots of money, with localities vying for their small share.

Unsurprisingly, local leaders – including the directly-elected mayors of combined authorities who are emerging from the many devolution deals that the government is signing – are keen on fiscal devolution. This year, if the respective councils ratify the deal that has been agreed in principle by the central government, a new Mayor of North Yorkshire and the City of York will be elected for the first time.

You can bet that the new Mayor will want the ability to raise money to go along with their new responsibilities. All the evidence suggests that devolution of powers without fiscal autonomy creates the risk of ‘unfunded mandates’ for local places: the responsibility of delivery, but without the means to get the job done.

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This is also about setting up the right incentives. Devolving at least some taxes would mean that creating the conditions for local growth could become a crucial way for local government to increase its own spending power, and give them the ability to identify and support local priorities.

The Government, it seems, agrees with these arguments. Michael Gove, who is once again the cabinet member with a remit covering levelling up and local government, told a committee last year that he would “always be arguing” for fiscal devolution.

So we are in a puzzling position: the party in opposition is, at least in this area, offering less radicalism and ambition than the party in government. This is disappointing, especially after the party’s own Gordon Brown recently published a report calling for “gradual but clear steps towards fiscal devolution”.

Dr Simon Kaye is director of policy at the think tank Reform.