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Fabian Society argues in favour of fiscal devolution

Author: ICAEW Insights

Published: 20 Oct 2023

ICAEW-supported research report describes how England is one of the most centralised nations in the developed world, and makes proposals that focus on economic development.

The Fabian Society has published a report on fiscal devolution, highlighting how just 5% of tax is controlled at a sub-national level in the UK, compared with 13% in France and 31% in Germany. 

Produced with the support of ICAEW, Equality and Empowerment: a progressive proposal for fiscal devolution and economic development in England says that England needs an English solution to fiscal centralisation, including a devolved economic development budget and limited powers to raise levies and charges to fund new projects. The report rejects the devolution of wider tax raising powers to regional and local authorities, instead focusing on how control over economic development spending can be devolved away from central government.

Alison Ring OBE, ICAEW Director of Public Sector and Taxation, provided the foreword to the report, in which she comments that “micromanagement is an ineffective way to run any organisation, let alone a nation the size of England”. She says: “England is generally agreed to be the most centralised nation of its size in the developed world, with central government involved in almost all aspects of how local authorities operate. Despite the extensive control exercised by Whitehall, ministers find this does not translate into effective action on the ground, while local leaders are frustrated by excessive bureaucracy and limitations on how they can drive economic development locally and regionally.”

Ring stresses the importance of governance and accountability to the success of fiscal devolution, especially in the light of recent government failures in certain English local authorities, adding that, “More control over spending must be accompanied by stronger governance and accountability. Greater transparency, easier-to-understand financial reports, high-quality and timely local audits, and more investment in finance teams, processes, systems and financial controls will all be essential, not just for the public but also to bring policymakers on board.”

Written by Luke Raikes, Fabian Society Research Director, the report comments that local and regional economic development spend is half the rate of that of France and Germany, resulting in worse town centres, public realm, housing, transport and job creation, as well as the UK being the most regionally unequal high-income country.

In addition to analysis on just how centralised England is and how that compares with other developed countries, the report sets out several principles to guide fiscal devolution in England, including that it should be effective at improving living standards, not embed or create inequality, and be ‘fair’, pragmatic, and accountable.

The main recommendation is for a devolved economic development budget, controlled by local rather than central government, together with limited additional income generating powers to enable councils and combined authorities to fund specific development projects.

As ICAEW notes in the foreword: “While it could be argued that even more radical reform is required, the Fabian Society has put forward an innovative proposal to improve local and regional government in England through greater fiscal devolution of spending powers, at the same time as freeing up central government to focus on national priorities.”

ICAEW engages with policymakers across the political spectrum, public servants, and others to promote the need for effective financial management, audit and assurance, financial reporting, and governance and ethics across the public sector to ensure public money is spent wisely.

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