The cost of living: an economic devolution approach

Picture: (CCL)

By Max Abdulgani – Deputy Editor

‘This article is largely based upon a policy paper I wrote when working at the Tony Blair Institute for Global Change in September. The contents of which reflect an economic and political case for more regional devolution, specifically to aid with and mitigate the impacts of future cost of living crises.’

This cost of living crisis that looms over Britain is unique in its nature, not least because the country has not experienced this level of rapid decline in living standards since 1956. Real household incomes are projected by the Bank of England to fall by 2.25% by 2023. This coupled with more than a decade of wage stagnation and the highest inflation rate since 1982 will plunge millions of people into relative poverty.

The British government faces an inescapable dilemma, not least on its ability to increase financial empowerment in an age of sky-rocketing bills, record consumption and rapidly declining living standards. The cost of living emergency that continues to dominate Britain will only get worse throughout the winter and spring months. Mainstream political parties have proposed responsive and short-term solutions that consider the current circumstances and their disproportionate socio-economic impact on the working population. But this will only suffice for a limited number of months.

What beckons policymakers is a long-term solution to future cost of living crises. One that is foolproof and enduring, one that considers reforming as well as mitigating policy measures and one that acts not simply as a sticking plaster for economic hardship but a comprehensive fix to the problems that arise. This vacuum of thinking and legislation has for years driven a short termism that has repeatedly failed to deliver on the fundamental problems. Solutions will not just come from responsive alleviation and short-term tinkering. Instead, the country requires a more radical set of reforms and measures that should hold the aims of devolving more powers to local government in order to sustain a more equitable welfare system and a fairer offer to regions. This offer should include a number of key fundamental changes to Britain’s national and local government power balance, but should principally be guided by an underlying commitment to increased fiscal autonomy for regions.

Throughout the COVID-19 pandemic, communities have learnt the hard way that coordinating local economic policy measures with national government is no easy task. In Manchester, combined authorities did not have the sufficient capabilities to fund welfare and furlough schemes for its residents. The current structure of government finances is one skewed towards the natural centre of political gravity; Westminster. This is largely a necessity for grand infrastructure projects and planning laws that need to be legislated for nationally. But aspects of it have proven to be counter-productive towards the interests of regions and the practice of economic devolution.

The use of a competitive bidding system to unlock funding for metro mayors, for example, is not fit for purpose. Instead, this should be replaced with a negotiated settlement for permanent funding between combined authorities and the treasury. This would remove the competitive nature of boosting much-needed investment within communities as well as opening up more reserves in instances of national crises such as the pandemic. This proposal has been heavily backed by think tanks such as Onward and Centre for Cities. It is also backed on a cross-party basis by prominent metro mayors such as Andy Burnham and Ben Houchen.

Secondly, another policy objective would be to replace council tax with a proportional property tax. A progressive tax that would raise revenue based upon the value of property across regions in Britain. Currently, the council tax system favours wealthy areas and neglects deprived areas. In times of national government budget cuts, councils with a higher level of low-value properties simply do not have the capacity to conduct meaningful revenue raising. Even despite this, however, deprived areas are being unfairly categorised under higher council tax bands to maximise revenue that can’t be raised. The disproportionate effect this has on working people is nothing short of unacceptable. A fundamental restructured plan would incorporate property value as well as land value into it. A proportional property tax enacts the first of these. It is estimated to cut taxes for 75% of all households across England, with the average household saving £435 per year in tax. It would also be a redistributive tax. One that raises higher revenues from regions with higher property values and reinvests this into deprived areas. Once again, this policy has been backed by metro mayors and respected think tanks alike.

Decades of failing to prepare for future cost of living emergencies have left Britain in a stark situation. With real wage growth falling, prices rising rapidly and a noticeable absence of long-term material thinking and policy-making from the top tier of government; serious reforms are needed. The devolution and local government aspect of the cost of living is one that is often overlooked for obvious reasons, and this must be changed. Long-term strategies will overcome future cost of living crises and will result in mitigation measures that properly protect individuals and regional budgets.

This will only come through taking a modernising and progressive approach to governance, and focusing on small parts of national government policy that can be altered to make way for far-reaching implications for local government policy.

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