A “radical extension of direct democracy” is upon us. An announcement today championing localism from Communities Secretary Eric Pickles MP is an important step towards greater fiscal decentralisation. Mr Pickles has proposed an innovative range of measures that will see English councils get the opportunity to attract businesses to their area, allowing local communities to flourish, while giving power to the local electorate.
New reforms will see the scrapping of the old council tax capping scheme in return for communities having the power to veto large council tax hikes in local referendums. That will allow local taxpayers to take decisions into their own hands, and is a welcome move in ensuring greater efficiency and democratic accountability. No longer can local authorities raise council taxes enormously, just to spend it on red-tape or wasteful projects; under the new plans any rise above the national tax rise ‘ceiling’ by a local authority will have to win support in a referendum, taking place alongside local elections. The council will have to convince communities that the rise is necessary and worthwhile, outlining their expenditure plans.
Instead of Central Government trying to make a one-size-fits-all decision on what the maximum rate should be, communities can be content in the knowledge that any rise will only occur if they are convinced it is the right thing to do.
Under Labour, council tax rises peaked at an average of nearly 13 per cent during 2003-04. Public outcry has helped to reduce this rate since, but taxpayers will now be able to stop big hikes directly by voting down big rises in their council rates. Communities will enjoy a national council tax freeze for the coming year, which will allow for the implementation of the new reforms to take place. This fiscal decentralisation will establish more budgetary power and flexibility for local authorities, in return for accountability and transparency in their spending decisions.
And it is here that Pickles can become even bolder with his plans. More ambitious moves towards fiscal decentralisation could improve public sector efficiency and increase economic growth. Currently, less than £1 of every £4 that local authoritiess receive is from council tax revenue. By devolving even more powers, such as VAT, business rates and Stamp Duty, local authorities would be incentivised to make their area as attractive as possible to businesses and families. In our report on localism, we suggest further routes that the government can take to create more efficient, greater serving local authorities. Councils are better placed to be responsive to the needs of its local businesses and citizens, while competition between councils will drive taxes down.
Having scrapped a number of the regional quangos that were failing with inefficient bureaucracy and red-tape, Pickles is encouraging authorities to be as radical and inventive as they can to attract talent and investment to their area. Fiscal decentralisation will empower businesses and entrepreneurs to move to burgeoning districts, creating wealth for the local communities, with community knowledge driving a new era for economic growth. The micromanagement of the past can be replaced by enthusiastic businesses preparing to take a lead role in local prosperity. Any temptations for the government to intervene need to be removed, allowing councils to have full confidence to improve their performance.
The transparency that will ensue from this reform will allow taxpayers to have the final say on where their money goes, and will allow businesses to drive the recovery of local economies around the country. The beneficiaries of the greater efficiencies and services that result will be taxpayers.