28/05/2015 17:40 BST | Updated 28/05/2016 06:59 BST

A Case for Devolution

"It is time for you to take control of your affairs": so said George Osborne, launching the Cities Devolution Bill that is expected to feature in the Queen's Speech. The Chancellor is right. It is indeed time for power to be decentralised radically - in deed, as well as rhetoric.

We live in a democracy that is not fully democratic. Once every five years, we are given the chance to elect parliamentary representatives who, in turn, determine the party (or parties) who govern from the centre. We are also able to vote for local councilors and, in a handful of cities, for directly-elected mayors.

Yet the turn-out in local elections is often feeble (only 31.3% three years ago) and sometimes disastrously poor (15.1% in the 2012 elections for Police and Crime Commissioner). When 11 cities were invited in referendums three years ago to endorse the introduction of directly-elected mayors, only two did so.

This does not reflect apathy, but a bleakly rational deduction by the voters. They know that local government wields comparatively little power in this country. Why make a trip to the polling station when your decision makes so little difference?

The present balance of power between centre and locality - between Whitehall and town hall - is reflected in the balance of revenue categories. Around 60% of local authorities' money comes from central government, with the remainder made up by council tax and other local revenues. Furthermore, the discretionary potential in these supposedly local income streams is severely curtailed.

Local authorities that wish to raise council tax by more than 2% must call a referendum - a serious fiscal lock. Business rates, which are paid annually on 1.8million properties, are set by the Treasury and the revenues pooled at the centre for redistribution. In practice, local politicians have very little authority.

Powerlessness is not an abstraction. It has real, deeply undesirable consequences. Look at the 2013-14 floods in Somerset: here was an example of central panic compounding local failure.

Regional authorities with muscle would have planned seriously for such a contingency and had the resources to put in place the necessary infrastructure well in advance. Instead, as large parts of the Somerset Levels were submerged, ministers, councillors and agency chiefs dithered and bickered about who was to blame.

Even before the SNP's extraordinary performance in the general election, it was clear that more power was be devolved to Scotland. The Chancellor's plan to give cities greater power over their transport, skills, health-care and housing policies, and to keep more of the rewards of local growth is fine - as far as it goes. But why only devolve to the cities and yo Scotland?

Osborne is right that "the old model" of Whitehall centralism is malfunctioning and makes "people feel remote from the decisions that affect their lives." But if that is so, it is true of the whole country. Decentralisation to cities and a second phase of devolution to Scotland need to be parts of an all-encompassing new institutional settlement.

The answer is not another tier of regional government but a new map of local authorities, reflecting, as far as possible, ancestral boundaries that have emotional meaning for the inhabitants rather than for bureaucrats (why not, for instance, recreate Mercia, and the other kingdoms of the Anglo-Saxon era?).

As former Deputy Chairman of the Milton Keynes Development Corporation, I am well acquainted with the challenges of ensuring that local infrastructure is fit for purpose and that local services meet local needs. This is hard in a unitary state - which is what, essentially, the UK government has been since 1945. For all the talk of localisation and diversity, the unspoken rule in far too many aspects of public policy remains the assumption that one-size-fits-all.

The heart of the matter is fiscal autonomy. It cannot be total. By definition, a nation cannot permit fiscal secession, independent statelets that amount to real-life versions of Passport to Pimlico. But, at present, the funding system is badly imbalanced, tilted in Whitehall's favour. A correction is needed, to give local government much greater authority to set taxes. In Australia, 87% of local government spending is self-financed. In Canada, the figure is 83%, while in France it is 72%.

Contrast the iron grip of the gentleman in Whitehall. Why, for instance, does a town hall need a referendum to increase council taxes by more than 2%? After all, Alistair Darling did not consult the voters when he introduced the 50%t additional rate of income tax. And why should business rates be dictated solely by the Treasury?

The redistributive aspect of this revenue stream means that regions cannot cut the rate - as they might wish to do, to attract investment. But, again, why should a local authority not be free to impose a local business levy? This might not be fiscally wise but it is an option that should be available to local government. That is democracy.

The standard objection to such arguments is that local government has not proved itself sufficiently dependable to handle greater powers. What if a particular council overtaxes, overspends and faces financial ruin? Would the Treasury be expected to step in and bail out the area in crisis as it bailed out the banks?

These are legitimate questions but - truthfully - belong to another era. The town hall militancy of the Eighties survives only as an irritant, in the political correctness that besets local government. The real problem facing local authorities in 2015 is not the result of local profligacy but the consequences of national austerity.

Osborne's deficit-cutting strategy was absolutely necessary, and is now bearing fruit in a national recovery most remarkable for its surge in employment. But town halls have suffered disproportionately. According to the National Audit Office, central government funding of local councils is set to drop between 2010 and 2016 in real terms by no less than 37% - a transformative reduction.

The corollary ought to be greater local freedom to raise revenue. Yes, more frequent auditing will be necessary to ensure that councils are not heading for local fiscal disaster. The devolution legislation should explicitly reserve for the Treasury the last-resort right to assume financial control of a council that is courting crisis. But these would emphatically be emergency powers - a reassurance to the taxpayer and to the markets.

Citizens will vote in local elections when the stakes are high enough. A higher quality of candidate will seek election to local councils when these bodies have real power to influence and to improve life in the areas that, at present, they only notionally govern.

Alexis de Tocqueville wrote wisely when he observed that "town meetings are to liberty what primary schools are to science; they bring it within the people's reach... Real power, real accountability. Eight centuries after King John went to Runnymede, we need a new, decentralising Magna Carta.