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Britain’s localist revolution

Published in Business Spectator (Melbourne), 15 October 2015

Manchester Town Hall

As Mahatma Gandhi once said: “First they ignore you, then they ridicule you, then they fight you, then you win”. I was reminded of this quote when I read about George Osborne’s speech to the Conservative Party conference in Manchester last week.

The Chancellor of the Exchequer delivered nothing short of a revolution to the way that Britain is governed. Osborne promised a radical devolution of power and money from central government in London to the cities of the UK.

The reason why Gandhi’s saying came to my mind was because I was involved in promoting these ideas when they were still, well, somewhat less popular. In fact, at the time they earned me an invitation from Osborne’s boss, David Cameron, to leave Britain rather sooner than later.

The problem with Britain’s way of government, in a nutshell, is that it is way too centralised. Central government collects 95 percent of all taxes, whereas local governments depends on central government’s mercy for about three quarters of their budgets.

As a result, local government does not enjoy much freedom to regulate its own affairs. To make things worse, local government does not even have any incentive to do a good job in promoting economic growth. For if it did, the proceeds of growth would go straight to London.

When I worked for the London-based think tank Policy Exchange, this imbalance between central and local government was one of our main concerns. We observed time and again how Britain’s centralisation discouraged local economic activity and how it contributed to national economic problems such as the chronic shortage of housing supply (A housing market whodunit, February 10 2011).

Our response to this endemic centralisation of British politics was to develop a blueprint based on the philosophy of localism. We wanted to take political decisions back to the people they affected. We wanted to give communities greater say over their affairs. We wanted to let Britain experiment with different policies for different regions.

Gandhi’s stages were all too present, though. In the beginning, our localist proposals were largely ignored. They went against the grain of nearly two centuries of centralisation, a political development that had been driven by governments of the left, right and centre.

We received our fair share of ridicule and open hostility, too. When I published a report with localist recommendations on urban regeneration policy in 2008, it was none other than David Cameron who called them “insane” and “barmy”. Cameron even got personal when he said about me “the sooner he gets on the ship the better”. (Indeed, I soon left Britain for Australia.)

But as Gandhi predicted, eventually those ignored, ridiculed and fought ideas do win (occasionally). George Osborne’s speech to the Tory faithful delivered this victory for the localist paradigm.

Coincidentally, the backdrop of Manchester gave Osborne a good hook for his localist agenda: “Look at Manchester Town Hall, in all its neo-gothic splendour,” he said. “It was built as a place of power — a great civic cathedral, where the decisions affecting this city would be taken — not remitted to a committee in London.”

That, of course, was the 19th century. Manchester town hall is a Victorian palace, completed in 1877 and looking like a miniature version of the Palace of Westminster. It was the heyday of British local democracy. But, as Osborne admitted, the wings of local government had since been clipped again and again by all parties, not least by his own Conservatives.

“Almost everything, from the amount they could spend to the taxes they could keep to the work they undertook was determined in Whitehall,” Osborne told his party conference. “It’s time to face facts. The way this country is run is broken. People feel remote from decisions that affect them. Initiative is suffocated. Our cities held back. There’s no incentive to promote local enterprise. It’s time we fixed it.”

And then Osborne announced something that truly deserves the label ‘revolutionary’: British local government will be allowed to keep the rates they collect from business, all £26 billion of them ($55bn). Not only that, but they will also be granted the freedom to set their own rates – in other words, they will be allowed to compete with each other.

The idea behind the proposal is simple: Local government should be incentivised to do what is right for economic development. In Osborne’s words: “Regenerate a high street, and you’ll reap the benefits. Grow your area, and you’ll grow your revenue too.”

Incidentally, this is precisely the idea that I campaigned for when it was still unpopular to do so. I am pleased, no: thrilled, to see that it has now become government policy to trust the locals and provide councils with incentives to grow their economies.

For Osborne, this new localism adds up to a philosophy of fiscal responsibility: “Any local area will be able to cut business rates as much as they like to win new jobs and generate wealth. It’s up to them to judge whether they can afford it. It’s called having power and taking responsibility.”

From an Australian or New Zealand perspective, this revolution in the way Britain is governed may not seem to matter much. Except that we have a lot to learn from the way Britain is recalibrating its way of government because our own political systems are heavily centralised as well. Consequently, we suffer from the same defects that Osborne is just about to correct with his reforms.

In Australia and New Zealand, too, local government is marginalised. It suffers from the same lack of incentives for good performance. It is also at the mercy of state (Australia) or national (New Zealand) governments.

If we cared about better and more responsive government, we would discuss ways to bring government closer to the people and to incentivise local government to promote economic growth.

Now, of course I am aware that in both Australia and New Zealand, local government typically gets a bad rap. To make the case for greater local government autonomy and greater fiscal decentralisation, you are either ignored or ridiculed. You are not even fought properly because nobody would take you seriously.

That was our fate when we first promoted the localist agenda in Britain about a decade ago. As you can see in George Osborne’s speech, by now our ideas have become mainstream and government policy.

The way things usually go, it is only a matter of time until they reach our policy-making circles in this part of the world too. Let the localist revolution come to Australasia.

Eventually, us localists will win.

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