Brexit and fiscal devolution


by Rob Whiteman, CIPFA Chief Executive  

Last month, MPs voted to back the prime minister’s EU withdrawal bill, which is designed to end the EU’s supremacy in UK law. Theresa May heralded the vote as "an historic decision to back the will of the British people". 

As soon as the Brexit Bill was passed by the Commons, MPs from all sides of the political spectrum put forward amendments, with the sentiment that, as it stands, the Bill will give ministers free reign to modify legislation with only minimal parliamentary scrutiny. This means that rather than giving more power to the people, these so-called ‘Henry VIII powers’ would allow the government to ‘take back control’ from the parliament.  

However, although it is tempting to view the creation of the Bill as a means to create an unassailable government, it is more likely that it is created to avoid a legal logjam the day the UK leaves the EU. By simply transposing existing EU legislation into UK domestic law, parliamentary squabbles should be minimised, giving the civil service machine enough time to process the technical minefield that is Brexit.

Whatever the purpose of the Brexit Bill, it has raised serious question marks over whether the UK’s exit from the EU will provide the control that some of the leave voters craved. I believe that it could, but this relies on the devolution of EU powers, particularly fiscal controls, not just to Scottish, Wales and Northern Ireland, but to all regions within the UK.

At CIPFA’s Brexit Advisory Commission for Public Services event in Newcastle, which took place earlier this week, speakers debated whether devolution to the region could enhance the effectiveness of public services. The panel generally agreed that there would be a number of opportunities for the North East, and likewise for regions throughout the country.

One of the most compelling opportunities discussed was how more fiscal powers could help boost services and promote inclusive growth. Although it is a matter of debate how much in the way of financial resource will be coming back from the EU to the UK, it is likely that there will be an opportunity to repurpose fiscal policy in a post-Brexit scenario. Controls over any equivalent structural funding scheme, for instance, could be devolved. However, for such fiscal devolution to work, there needs to be a shake-up of UK regional policy, as the current options on where powers could sit present many fundamental challenges. 

One available option would be for fiscal controls to be given to City Deals. However, as each Deal is tailored to individual areas and can vary significantly, it may be difficult to both install any centralised policies that may be necessary and to compare the effectiveness fiscal powers are having in each region. Furthermore, although there is an economic argument for City Deals, as growth within cities can have an agglomerative effect for other areas, there may be large chunks of the population that could be left behind. As the UK has the widest gap between its richest and its poorest region of any country in the EU, we cannot afford for devolution to increase these disparities any further.

Another method would be to create a federalised UK, where local administration would sit in mayoral offices. This could help reignite public engagement and trust, as it helps disable the idea of power being hoarded in Westminster. A grudging acceptance of the mayoral model of devolution is slowly growing across the UK but it is far from established and local populations remain highly localised in their sense of identity and carry little sense of allegiance to the wider geographies of regional administration that might be the desirable unit of scale in a federal system. 

It seems that pulling off meaningful fiscal devolution will be no easy feat and there will be much to work out on how best it could be supported. However, doing so is imperative. Brexit cannot mean that it makes it easier for the government to run roughshod over communities. Indeed, that would be the opposite of ‘the will of the people’ stands for.

This article first appeared in the MJ.

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