Clegg and localism: early thoughts

I’ve just trawled through Nick Clegg’s speech on localism to the LGA today. A few thoughts:

1. He lets the Tories off too easily (unintentionally I’m sure). He is of course perfectly right to give them a hard time for refusing to even contemplate devolving spending, but the truth is it’s far, far worse than that. To quote Gideon Osborne’s interview in Prospect this month:

But surely this devolution process just means the health and education services are captured once more by the professionals? Not at all, says Osborne. “Accountability will come through payment by results.” This, he says, is a superior approach to the Labour model of targets. “Targets mean you have a big monolithic service and the secretary of state decides how you achieve something—how much time you spend on a task and how many times you do it. This is a different approach, where you say to a private company that is, say, running a prison: we will pay you according to reoffending rates. So we will choose the objective, but they will decide how to achieve it.”

Replacing targets with “payment by results” is an oxymoron. What he means is that he wants to replace the government’s present system of targets by a new system of targets. The fundamental problem with targets – that it creates an incentive to game the system – will remain. Contrast this with Clegg’s definition of the role of central government:

The central state has a vital role – of course.

It must intervene to allocate money on a fair basis, to guarantee equality of access in our schools and hospitals, and to oversee core standards and entitlements.

But once those building blocks are in place, the state must back off.

This is genuine localism. Osborne’s prescription is for more, but different, centralisation. If he and his colleagues are going to insist on uttering such drivel, we have a duty to point and laugh.

2. There is still an LVT-shaped hole in Lib Dem policy. Clegg’s redefinition of local income tax in this speech is actually quite encouraging, in that it is clear that his real enthusiasm is not for replacing council tax with LIT but replacing national income tax with local income tax. I share his enthusiasm.

His problem is that he is extremely unclear about how inverse the current 3:1 national:local tax raising ratio without creating a system that would reward rich areas while penalising poor ones. Indeed he only mentions this dilemma once:

The government needs some leeway to make up the differences between needier and wealthier councils with a grant that varies between areas.

… and doesn’t even allude to the fact that localising business rates will actually make this even more pronounced.

The question is how do you create a clear, transparent way of squaring this circle. The solution, in principle at least, is obvious: create a national tax on wealth and redistribute it on a per capita basis. That means a national system of Land Value Taxation. The alternative is lots of complex formulas which can be manipulated by the government of the day. You couldn’t redistribute a national income tax in this way equitably because, as we all know, a lot of the richest in society don’t actually pay a penny.

You couldn’t introduce a fully fledged LVT system in a single term of office, but we could at least talk about it. As I said before, it is curious that we are so shy about doing this while at the same time so enthusiastic about rolling out a system of national road pricing over a 10 year period.