In a speech to the Local Government Association this week, Shadow CLG Minister Steve Reed indicated that the Labour Party is gearing up to try and outflank the Government on its devolution agenda – raising the prospect of the Party calling for more public service functions like education, welfare and housing to be devolved, as well as further fiscal control over VAT and elements of income tax.
The speech brought to mind the short period at the end of 2014 in which there was a race to the top on urban policy between the major political parties – with the Conservatives, Labour and the Liberal Democrats each trying to outdo each other on their ambitions to drive power down from the centre to local government.
That race was seemingly “won” ahead of the 2015 General Election, as George Osborne announced the Greater Manchester Devolution Deal, and introduced the ‘Northern Powerhouse’ into the lexicon of British politics. Labour in particular appeared unsure how to respond. Although figures like Andrew Adonis and Jon Cruddas pushed for Labour to seize the initiative, there is no doubt that the Conservatives went into the Election with the more ambitious devolution proposals on offer.
And in the early months of the new Parliament, it became clear that devolution was actually becoming something of a fault line in internal Labour party politics. Jeremy Corbyn’s scepticism about the Northern Powerhouse led to the Labour frontbench attempting to sink the Government’s Cities Devolution Bill, on the grounds that the legislation was actually nothing more than a means to impose cuts on local authorities.
Now the Bill is nearing Royal Assent, there are signs that Labour’s frontbench is shifting its approach from one of sceptical opposition, to demanding that the Government goes further in devolving public service functions together with greater fiscal powers to local government. In the third reading of the Bill, Shadow CLG secretary Jon Trickett declared that the Bill was not ambitious enough, and that Labour would continue to make the case for a bolder approach to devolution. However, there are clearly unresolved questions for the Party here, given Labour’s historic preference for a strong central state, capable of responding to concerns about postcode lotteries relating to the quality of public services, and a desire to retain significant redistribution from prosperous areas to less well-off parts of the country.
In particular, Reed’s suggestion to the LGA that “elements of income tax” could be devolved is potentially problematic. Allowing for varying rates of income tax between places in a relatively small country such as the UK would introduce unhelpful levels of tax competition. Since workers are highly mobile, it would create an incentive for local authorities to set very low tax rates in order to attract workers and boost tax revenues, rather than through activities that could boost productivity, increase the supply of new homes or spur further economic growth in the long-term. An alternative next step on fiscal devolution would be to look at giving places more control over the suite of property taxes generated within their area.
Likewise, the Party’s continued commitment to holding a nationwide “constitutional convention”, which makes sense in the context of a Party seeking to re-engage people in the political future of the country, indicates Labour remains uncomfortable with the deal-making approach that has enabled progress on devolution to the city-regions in the first place. In a country as centralised as the UK, devolution will necessarily be an uneven process, with some cities moving ahead more quickly than others depending on their institutional capacity and ability to work together with neighbours at the local level. In the months and years ahead, Labour will need to try and resolve the tension between the multi-speed nature of devolution, and it’s inherent preference for whole system solutions that can deliver equal outcomes across the country.
Nevertheless, moves from Labour to re-assert the Party’s devolutionary credentials are very welcome, and signal an increasing awareness within Labour that their policy positions must reflect the world as it will be by the next General Election in 2020, not as it is today in 2016. The Devolution Deals signed during 2015 represent significant progress towards more powerful city-regions capable of driving economic growth in their area, but there undoubtedly remains much more to do to equip UK cities with the tools they need to fulfil their potential. There is an opportunity here for the national Labour party, working closely with local Labour leaders, to develop a bold and radical prospectus for what this should look like. The race to the top on urban policy could be back on after all.