Monday, 17 November 2014

DEVOLVED FUNDING - POLITICIANS DON'T FIND THE WAY

The Scottish independence saga has provoked urgency to the English devolution question. Centralised government breakdown calls for decentralisation. Politicians know what they want to achieve but are not good at doing it according to published evidence of costly implementation blunders (King and Crewe). There is “dissatisfaction with politicians, political parties and UK politics”.  

Local funding is high on the list of blundering failure over decades of wasted inquiry, change, implementation and operational failure. For decentralisation to work new insights and ways of working must be found if the public finances are not to finally drain away along with political competence.

At present all local spending and ‘local’ tax is part of the totality of public finance  and recorded as such. This requires central management from the top. Yet is only very recently that consolidated accounting has been introduced WGAs (Whole of Government Accounts). These are defective for the same reason that the European Accounts have failed their audit for 19 years to date and are so late as to be unhelpful to the OBR (Office of Budget Responsibility). For example: funds voted are left to be managed by recipients without feedback to the centre which control requires. Controlled decentralisation does not however require detailed centralised control of local decisions and activities.

It is said that local people must contribute to their local area with local’ taxes. They already do with council tax, business rates, VAT and income tax. It is said that people ought to be able to identify ‘local’ council tax payment with local needs and spending but mixed revenue flows prevent this allowing the unaccountable ‘loony left’ to ignite a general  explosion in spending over recent years. The corresponding explosion in council tax around 2003, when raised with councillors, produced the ‘nothing to do with me guv’ syndrome. Over-riding central reaction had to be the council tax ‘cap’ which in its various forms continues but now accompanied by reducing central funding.

It is said that under those conditions there is local accountability. That is self-evidently false and efforts in the future to go down that route with local income taxes, sales taxes and so on will decentralise bureaucracy at great operating cost without achieving anything like the desired result. The present hybrid system is a perfect demonstration of a compromise too far. In reality the local unit is accountable for its performance, with public funds, not its tax calculation.

The main method flaw causing the muddle is “equalisation”. This is redistribution as a secondary process to cross-subsidise regions according to formulaic grant calculations of needs and differences not locally determined nor catered for in the primary taxation system. There is the suggestion, by the LGA (Local Government Authority) who badly want the present arrangements changed, that this should be replaced by another, supposedly ‘independent’ central body, again detached from local needs. That would change nothing and would still not allow for genuine inter-area transfers which are a necessary part of any sovereign state arrangements. It incidentally also seems from information received that the LGA is also still wedded to ‘no representation without taxation’.

There is only one way that wished-for local autonomy can be provided so as to go ‘off balance sheet’ or privatise - call it what you will. A constituted body run by elected representatives must raise its own revenue and be allowed to borrow only on the guarantee of its own people. There are ‘off the shelf’ pricing/subscription methods and existing ‘tax bases’ in the form of electoral registers and residencies. There is also on government record a simple to administer ‘automatic’ method given to Sir Michael Lyons for his Inquiry for drawing from central taxation which would work well, and indeed become necessary, once WGBs (Whole of Government Budgets) are operated as intended.

In any case there needs to be clear organisation and flow charts both for decision-levels and accountability. For example a Police Authority can source  funds from and be accountable to EITHER a central government specified place or a local authority which in turn can EITHER be accountable upwards (as in the NHS) or to local electors. LEPs (Local Enterprise Partnerships) are not accountable anywhere. The form of routine accountability to owners is specified in legislation and best practice but not ‘delivered’ by government. It is also necessary for devolved bodies to have the right to either refuse to observe central dictats or negotiate a price for carrying out activities not necessary to meet their own objectives. Conversely a central government body should be able to charge a local body for such as standard-setting advice.


The ‘joker in the pack’ in this and failure to solve the problem before now can be laid at the door of hidebound politicians, political scientists and economists and more specifically the Treasury which is out of date and has not evolved as in Industry to a position of influence in ‘how to do’ management infrastructure and systems. 

No comments:

Post a comment