Diego Zuluaga is a Research Fellow at the Institute of Economic Affairs.
Britons are all too aware of the problems of political and economic centralisation. Indeed, the trend for more and more legislative and regulatory power to move from London to Brussels is one of the main objections voiced to Britain’s continued membership of the European Union.
However, this debate often overlooks the extent to which the UK itself is a highly centralised country. With only five per cent of its tax revenue raised at sub-national level, the UK is by far the most centralised member of the G7. This is much less than federal states like Canada (50 per cent) and Germany (29 per cent), but also below France (13 per cent), supposedly the master of dirigiste centralism. With regard to the share of expenditure made at sub-national level, the UK is less of an outlier compared to its G7 peers, but it remains at the bottom of the pack together with France and Italy – hardly examples of efficient public administration.
Matters are made worse by our asymmetric devolution settlement. The countries that enjoy devolution – Scotland, Wales and Northern Ireland – tend to favour bigger government than England, where powers have not been devolved. This means that there is an unjustified big-government bias in Westminster. On one hand, MPs from the devolved nations can vote for big government for the UK as a whole and get it. However, even if Parliament votes for smaller government, their constituencies will retain big government because many tax and spending powers are devolved. This is not only unfair to English voters, but it also results in a tax and spending mix which does not reflect what UK voters as a whole want.
Some have proposed EVEL (English Votes for English Laws) as a potential solution to this constitutional imbalance. However, while it looks neat and simple on the surface, EVEL would further complicate the legislative process by making some MPs responsible for two sets of issues (English and UK) and others for only one set (UK). Furthermore, we could end up with, say, a Labour government with an overall majority of MPs, but faced with a majority of Tory English MPs. In that situation, the government would be able to legislate on UK-wide issues like foreign affairs, but it would be barred from deciding on English matters like healthcare and education. EVEL could make day-to-day governing very difficult.
A new IEA publication offers an alternative solution, based on a federal settlement for the whole of Britain coupled with substantial decentralisation within each of the nations. The aim is to overcome the problems and instability of the current settlement, and to take the opportunity to bring government radically closer to the people.
There would be a UK government in charge of a limited set of functions – defence, foreign affairs, and the management of the national debt. All other powers, including healthcare and education, would be handed over to the nations. These powers would then be decentralised to the local level, allowing communities to determine most taxes and spending, as well as local healthcare services, schools, policing, planning laws, and lifestyle regulation.
Fiscal decentralisation of this sort would almost certainly have a positive economic impact. Studies suggest that raising the local share of taxation from five to 20 per cent could increase per capita GDP by six per cent. Not only that, but communities would for the first time in a long time be able to determine policy according to the preferences of local people and the particular conditions in each place. There would be vastly greater scope for experimentation and constant reform.
Constituents could provide steady feedback to local councils, not just through regular elections but also by moving away from places that enacted bad policy and into places that offered a good environment to live, work and raise a family. ‘Foot voting’ of this sort, because it involves the movement of capital and labour (and related tax revenues) can be more compelling to public authorities than traditional ballot-box voting. We could thus expect councils to reverse course on bad policy more quickly than is currently the case.
Many of the problems the UK faces today – from an acute shortage of housing to an inefficient health service and underperforming schools – are made worse by centralisation. Just imagine how much easier it would be to arrive at optimal policy if local communities had the ability to reform and experiment with new ways of delivering services based on local needs. We might see school vouchers in Lincolnshire, greater competition between hospitals in Devon, planning liberalisation in Norwich and an end to the smoking ban in Newport. Crucially, decentralisation would enable us to try new ways of doing things without having to implement them in the UK as a whole. This would dramatically reduce the costs of potential failure, and also allow for different reforms in different places. After all, not all of us share the same vision of the good life – why would we all want the same sort of government policies?
The current debate over devolution in Scotland and the status of England offers an opportunity for extensive reform of the UK’s constitutional settlement. Moving towards a federal, decentralised Britain will make us all richer and allow local communities to flourish. We should not miss this chance to bring government closer to the people.