My Lords, I shall speak to the only amendment in this group, Amendment 128 in my name and signed by my noble friend Lord Shipley. This is a probing amendment to tease out the Government’s thinking on this issue. It was a deliberate decision to have this amendment in a group on its own because this really is the elephant in the room: fiscal devolution. We can talk about structures and systems but, without the proper levers of finance and autonomy at a local level, the structures and the systems will achieve very little and will not deliver the equalling up of areas and regions across the country.
I think we need to be clear about what this amendment is not about. This is not about handing down moneys raised by national taxation to areas so they have a little extra leeway on how that money can be spent. As welcome as this is, it is a small step that is not going to solve the regional inequalities that exist in the country. This is what the Conservative Mayor of the West Midlands authority calls the “begging bowl approach”. It is nothing more than spending decentralisation. It was quite amusing, listening to the Chancellor earlier today talk about a pothole fund. The very notion that a Chancellor of the Exchequer stands up in the national Parliament to deal with potholes is ludicrous. A predetermined pot of money handed down, usually with strings from Whitehall, to have local areas determine key projects in areas to spend that money is not fiscal devolution.
It was also telling that the Chancellor today, in announcing that the West Midlands and Greater Manchester combined authorities will have departmental-type arrangements, sees these arrangements as nothing more than decentralisation of central government departmental spending. It is even more telling, as has been reported in the Financial Times, I think it was, that even when the areas get this extra leeway on how the money is spent, there may be a committee set up here in Westminster to oversee how that money is prioritised and then spent. Other parts of the world that understand and implement devolution will be laughing in disbelief at this ridiculous notion of local autonomy.
5.45 pm
Let us be clear about what this amendment does talk about and what we are trying to glean from the Government. It is about extra levers the Government are thinking of giving to local areas to either raise extra money or vary existing taxes so that they can raise money or vary the amounts of taxes in an area to invest with full autonomy in their local areas and economies to try to deal with regional inequalities.
Local taxes represent a very small proportion of the total revenue of local government in the UK. Figures indicate approximately 15% of total local revenue is raised by local taxes in the country, compared with 60% in Sweden, 45% in Italy, 48% in France, 40% in Germany and 52% in Spain. Even with this Bill, local government in the UK will still be dependent on inter-governmental transfers. Approximately 67% of local government revenue in the UK was in this form of government grants. This compares with only 31% in Sweden, 33% in Spain, 40% in Italy, 37% in Germany and 25% in France.
At the city or combined authority level, the difference becomes even more apparent, particularly in comparison to other world cities. More than 73% of the West Midlands combined authority’s revenue and almost 69% of London’s revenue come from central government transfers. This is compared with Frankfurt at 13%, Berlin at 33%, New York City at 26%, Madrid at 32%, Paris at 16% and Tokyo at 12%. The lack of any significant financial autonomy is apparent. We are the most centrally fiscally controlled nation in the western world.
As I pointed out at Second Reading, in England
“only two property-based taxes are the levers that local politicians”—[Official Report, 17/1/23; col. 1756.]
have. For one of those, council tax, a ceiling is set here in this national Parliament. For business rates, again, the valuation amount is done centrally. There are very few levers any local government can have full autonomy over here in the UK. In France, local areas have nine taxes; in Germany there are more than 12; and in New York the figure is 22. The OECD has reported that, for regional and local government to be really effective and deal with regional inequalities, local areas need to have the fiscal powers, with a split of taxes and levies based on 60% property and 40% non-property.
Again, the Conservative mayor of the West Midlands combined authority is seeking a role in VAT and wants the proportion that can be held and raised to be discussed locally. Other types of revenue that are raised and varied at local level in other countries include the real estate levy, refuse levy, sewer levy, pollution levy and levies for the use of municipal land, as well as tourist levies, among others. In Germany, income tax is shared and distributed across the three levels of government. The share of the tax is not the same for every level of government, with municipal shares being the smallest. However, the principle of shared use and local autonomy over the money that is devolved is baked into how that income tax is spent. The local business tax is the most important source of revenue for local municipalities in Germany. Self-employed persons, including doctors and accountants, are exempt from it. The tax is calculated on company annual profits in the area and municipal involvement is in the tax multiplier.
I am not suggesting that all of these can or should be used here in the UK, but they are examples of what can be done when there is real political will to unleash the opportunities for local areas’ social, economic and environmental potential and to reduce regional inequalities. This can be achieved only when pinned to real fiscal devolution. It will be interesting to hear the Minister’s reply on the Government’s thinking on this issue, not just on spending decentralisation and structural changes. I beg to move.