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Even the IMF now demands devolution

Tony Travers
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The government should heed IMF advice and give local authorities control of capital investment

It tells us something about the centralised nature of Britain that even the International Monetary Fund has seen fit to advise Britain to devolve more power to local government.

In its recent periodical report on the United Kingdom, the IMF stated: “To accelerate the implementation of infrastructure projects, more authority over planning decisions should be devolved to local authorities.”

Viewed from the IMF’s headquarters in Washington, Britain must look incredibly centralised. One hundred per cent of taxes are, in effect, set by national government, which is seriously out of line with what happens in other advanced democracies. The IMF has concluded, on the basis of its research, that Britain’s lack of devolved power impedes infrastructure investment. Or, at the very least, the fund believes that capital spending would “accelerate” if more authority over decision-making were transferred to councils.

Local authorities in Britain are in a robust financial position compared to many European governments. Borrowing is under control and anyway councils cannot borrow to finance revenue expenditure. But the rigid constraints on local taxation, combined with the unpredictability of councils’ financial environment, means that investment will inevitably be very constrained. English local government does not yet know its centrally-imposed financial position for 2015-16 and probably will not do so till December 2014.

The problem facing those who support the devolutionary thrust of the IMF’s proposals is that the UK central government cannot or will not review its belief that only the Treasury knows how to manage all aspects of the British economy. At the core of British hyper-centralisation, ministers and officials truly believe that they alone can manage area-by-area spending control, capital investment and decisions about pro-growth policies. This unparalleled concentration of power is now beginning to have unpredictable political consequences, too. In a system of this kind, voters are cut off from decision making by a powerful elite.

Despite the obvious macroeconomic mismanagement of recent decades, there has been no reduction in the self-confidence of those who run England. Every pound of expenditure spent in the UK is still sanctioned in Whitehall. The IMF understands that something needs to change. A move to local control of capital investment would be a modest start.

Tony Travers, chair, London Finance Commission. He is also director, Greater London Group, London School of Economics

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