Finance: Fiscal Devolution

Lord Newby Excerpts

Wednesday 9th July 2014 Lords Chamber

[Lord Harris of Haringey]

To ask Her Majesty’s Government what progress has been made in considering the proposals for fiscal devolution set out in the London Finance Commission’s report Raising the Capital.

[Lord Newby (LD)]

My Lords, the Government have recently devolved a range of responsibilities and funding through the Localism Act 2011 and they have decentralised local government finance through the Local Government Finance Act 2012. Any further fiscal devolution to sub-national authorities in England would represent a significant change to the existing tax landscape, with potentially significant legal, economic and constitutional implications.

[Lord Harris of Haringey (Lab)]

My Lords, the Minister will no doubt have read the report issued this morning by the House of Commons Communities and Local Government Committee, which says that it supports the principle of fiscal devolution and found no evidence opposed to it. He will also be aware that the major cities of this country apart from London—Manchester, Leeds, Newcastle and all the other core cities—all agree that they need to see bolder fiscal devolution if they are to invest for their longer-term growth. Is it not time for the Treasury to undertake an economic analysis of how the full suite of property taxes could be devolved to England’s great cities in line with the recommendations of the CLG report and the London Finance Commission report and the devolution being delivered in Scotland and Wales?

[Lord Newby]

My Lords, the first point that the noble Lord makes is summed up very well in the introduction to the report to which his Question refers, in which Tony Travers, who chaired it, says:

“Devolution and localism face little opposition apart from national politicians’ cautious approach to constitutional change in Britain”.

That sums up the position very well, and I think that there has been considerable movement under this Government. I will take back the noble Lord’s second point to my colleagues in the Treasury.

[Lord Razzall (LD)]

Does the Minister agree that every political party during his adult lifetime has fought elections on the basis that it wants greater devolution of power to the regions or the cities and then, when it gets into power, it finds a reason not to do so?

[Lord Newby]

I am afraid that there has been a very chequered history of attempts to devolve power—within England, at least. This Government, by devolving half the income generated by business rates, have begun a process. The growth deals announced at the beginning of this week—under which, over a period, £12 billion will be devolved to local enterprise partnerships, whereas it would otherwise have been administered by central government departments—is a big move towards greater devolution. I suspect that in the next Parliament there will be much more pressure to do more.

[Lord Anderson of Swansea (Lab)]

My Lords, if London benefits with its high property values and other advantages, does that not inevitably mean that other parts of the UK will not benefit? How does one prevent that sort of fiscal competition, which surely cannot be to the benefit of less favoured areas?

[Lord Newby]

My Lords, the principle that operates if one is devolving tax revenue to a lower tier of government is that the amount of tax devolved is subtracted from the amount of grant which that tier of government would otherwise be getting. Therefore, at the start of the process at least, there is no net shift of revenue from one area to another.

[Lord Flight (Con)]

My Lords, will the Government consider allowing our cities to raise their own municipal bond funding, as is the case in the US and as was the case in this country in the greater days of our cities? It has only had to be done through gilts since after the Second World War.

--- Later in debate ---

[Lord Newby]

My Lords, there are obviously strong arguments which would enable cities to raise more funding. Those have been resisted by the Treasury under successive Governments. As they are moving towards drawing up their manifestos, I am sure that all the parties are considering whether they want to change those long-standing practices.

[Lord Foulkes of Cumnock (Lab)]

My Lords, rather than more piecemeal devolution, is the time not now right for a more comprehensive and coherent look at devolution throughout the whole of the United Kingdom, so that we have a sensible system, and that some kind of commission—a constitutional commission or royal commission, under a wise and experienced chairman—should be set up as soon as possible?

[Lord Newby]

My Lords, I was waiting for the last part of that sentence. I am sure that all noble Lords will bear the noble Lord’s expertise in mind, should a commission be established. I think that, once we have the outcome of the Scottish referendum, all parties and all people who are interested in constitutional change in the UK will want to revisit the issue. The exact way we do it is also something that I think all the parties are thinking about as they draw up their manifestos.

[Lord Davies of Oldham (Lab)]

My Lords, the Government seem to be extraordinarily complacent about the response to increasing demand from our great cities for increased powers. The Minister said that it was all too complex, and then his noble friend from the Liberal Benches produced the usual note of cynicism that people never fulfil their promises when in government. I assure the Minister that we intend to have a thorough examination of the powers to allocate greater resources to our cities and regions, very much in line with the noble Lord, Lord Heseltine. Does the Minister agree?

[Lord Newby]

My Lords, I am always pleased when the Labour Party rethinks its policies. However, the premise of the point that the noble Lord raised was misguided. This Government, through the city deals, has devolved significant funding to the major cities for the first time. As I said earlier, with the growth deals which we announced at the beginning of this week, £12 billion is being devolved to the LEPs from what were central government allocations. This is a very big shift of economic and social decision-making going down to the cities and regions.