Financial accountability of sub-national government and the welfare state
This final section argues that the overall financial policy which has been applied to devolution and to local government by central government can be viewed as two contradictory trends which comprise part of a meta-narrative of the contemporary multi-layered constitution.[1180] To put it at its most basic, on the one hand, devolved government has been given latitude to determine how budgets are spent, while on the other, local government has faced increasing financial restraint at the hands of central government.
If this dichotomy is viewed from a wider focus which also takes account of the effect of the radical cuts in public expenditure, it becomes clear that not only are both these trends called into question, but so are certain assumptions about the nature of a nationwide welfare state and the form of local and devolved governance as part of the state.The first policy that has applied to all three devolved systems since they were established has permitted a high degree of autonomy in the manner in which funding is allocated by the devolved administration. Once the amount has been calculated under the Barnett Formula, the sum made available can be distributed according to preferences decided at the devolved level. As Keating explains: ‘Scotland's financial settlement is unusual in international comparison, since it combines a transfer of accounting of the whole of the Executive's spending with complete freedom of allocation.'[1181] The same principle applies to Wales and Northern Ireland. Where a devolved administration decides to pursue a policy different from that followed or approved of by Westminster, it cannot be financially constrained from doing so. This flexibility has permitted significant policy divergence as compared with England. For instance, with residential care for the elderly, the Scottish Parliament has decided to provide a general entitlement to such care considerably beyond that available in the remainder of the UK.[1182] As a result of devolution, the non-English parts of the Kingdom have been able to develop their own distinctive priorities in public policy.
In contrast, the second policy-trend has been a concern to limit strictly the financial autonomy afforded to local government, particularly in England and Wales.[1183] The objective of successive governments, at least since 1979 and continuing right up to the present with the Localism Act 2011, has been to impose increasing control over local government expenditure by a variety of means. Moreover, the character of local democracy has been modified by the straitjacket imposed on it. Professor King claims there is a reluctance: ‘to admit that local government has all but ceased to exist... The effect, inevitably, has been to diminish the role that political parties and democratic elections play in the government, or the governance of localities'.[1184] Viewed from a historical standpoint, the consequences of what Loughlin describes as ‘the Benthamite principle of utility dressed in the modern garb of value-for-money'[1185] has to be confronted. The centre has become wedded to the single-minded pursuit of austerity and efficiency, and has constructed a rule-based regime to ensure particular types of policy delivery. This central priority has impacted on local government in the sense that it comes to be viewed purely as an instrumental agency to deliver central government's objectives. The overall effects of the programmes of rate-capping, compulsory competitive tendering and best-value dating back to 1979 have been cumulative. They add up to the progressive emasculation of local democracy through the imposition of centralization by a range of legislative initiatives with central-local relations reconstructed in much more explicitly hierarchical terms.[1186]
The need for increased financial accountability has been the pretext employed by successive governments for these initiatives. Professor Leigh observes that: ‘A recurrent plea from bodies recommending reform is to decrease local government dependence on central grant'.[1187] The corollary for any such aspirations is to deliver reforms of local government finance which shift the balance away from a dependence on central government and at the same time embed a fundamental linkage between taxation and spending at local government level.
Professor Jones argued during the parliamentary stages of the Localism Bill in 2011 that: ‘There is a huge gap in the Bill; a Localism Bill that lived up to its name would have dealt with the financing of local government. Centralism will prevail as long as local authorities are massively dependent for their resources on central government. They become supplicants for funding from central government rather than engaging in a dialogue with their citizens about local priorities'.[1188] The trend towards centralism under the coalition will not be confined to this measure. The distribution of funding by central government under the Local Government Finance Act 2012 has been defended by the Westminster government on the basis that the department is better placed to redistribute the revenue in order to support the less economically buoyant parts of the country. Nevertheless, this bill which seeks, among other things, to allow local retention of business rates has been criticized for giving the Secretary of State for Communities and Local Government the power to decide the share of these rates which will be channelled back to local authorities.[1189]While the Localism Act 2011 steps back from a policy based crudely upon ratecapping, the Act in other ways reinforces the powers of central government to control expenditure and taxation at the local government level. The capacity for municipal governance to express itself as a purveyor of the ‘big-society' vision rings hollow when faced with the prospect of central government intervention to keep local authorities within centrally determined expenditure and taxation limits. The 2011 Act provides that referendums may be used as a means of controlling expenditure by the Secretary of State for Communities and Local Government.[1190] Local authorities are placed under a statutory duty to determine whether the council tax they propose to levy is ‘excessive' according to principles set by central government.
The referendum requirement arises where an authority proposes to sets council tax at a level higher than that permitted under the principles formulated by the Secretary of State. Under the new procedure, before the referendum is held the authority is required to calculate an alternative budget which complies with the criteria set by the secretary of state. If the result of the referendum favours the council, the original ‘excessive' budget will be introduced. On the other hand, if the council's favoured budget is not approved by the local electorate in the referendum, the substitute budget will take effect in its place.[1191] If a rise that is regarded as excessive according to the government's criteria is proposed, the council must make arrangements to hold a referendum. The crucial point is that the secretary of state is empowered to set the parameters for determining whether a proposed increase in council tax is deemed to be ‘excessive'. In effect, the referendum requirement is triggered, albeit indirectly, by the judgment of the secretary of state.102 By this mechanism the Localism Act 2011 keeps the purse strings in the hands of the minister and it grants local authorities very limited financial autonomy in setting their own annual budget.These potentially conflicting trends have not been reconciled with another fundamental assumption which has underpinned the welfare state from its inception: the recognition of a relatively uniform base level of consistency in service provision applying to policy areas such as health, pensions and other welfare benefits. The welfare state was founded on the principle that the needs of the citizen should be determined, not on a geographical basis, but by central government, which is uniquely placed to balance the requirements of different parts of the kingdom. Professor Bogdanor claims: ‘What cannot be denied is that devolution threatens the power of the government of the UK to secure equal social rights for all of its citizens.
It is difficult to see how the state can secure these equal rights if has been fragmented and cut into pieces by devolution'.[1192] The calculation of the devolution block grant relies on funding levels in England. The use of the Barnett Formula as the method for allocating funding to the devolved parts of the UK has survived to date because it has guaranteed relatively generous rates of funding for Scotland, Wales and Northern Ireland. The prospect of replacing the Barnett Formula by needs-based arrangements is called into question by the regime of cuts which is currently being introduced. Against this background it would be difficult to justify a relatively generous baseline level of funding allocation for a needs-based system. This problem would be fundamental for any funding body to confront. It raises the prospect of regular conflict on the annual determination of block-grant funding by the Treasury. Alternatively, if the Westminster government were to legislate to ring-fence categories of funding on a national basis, such provisions might restrict the scope of devolved government to pursue distinctive policies in accordance with preferences in the devolved parts of the nation.This tendency towards fragmentation is accentuated by the Localism Act 2011. The ‘big-society' initiative which lies behind the legislation is an attempt by the coalition government to square the circle of further reducing the role of the state. This diminution is to be achieved partly by new initiatives conferring a general power of competence on local authorities and stripping away their regulatory infrastructure, while at the same time requiring new forms of citizen participation involving what is termed civil society.[1193] The problem is that the government is at the same time making substantial cutbacks in public expenditure, disproportionately so with local government, while stating a commitment in principle to health and social welfare.[1194] The result will be that local government as an agency for policy delivery is undermined as it is faced with massive shortfalls in funding that occur because of Treasury-driven policies.[1195]
G.