In his first speech since the Tory’s shock election victory, chancellor George Osborne today set out his vision for empowered cities, calling for the devolution of power to local mayors.
Greater Manchester will take control over things like housing, transport, planning and policing when it elects a Mayor in two years time and Osborne said the city should become a blueprint for others.
Goldman Sachs’ legendary economist Jim O’Neill today also joined the Treasury as an advisor and will help push the devolution agenda.
Devolution fits into Osborne’s dream of lessening the UK’s reliance on London by creating a “northern powerhouse”, but there could be another important reason for why the Chancellor wants to cut down his own power.
Morgan Stanley’s Jacob Nell and his team today put out a note considering how the Tories might pay for all the costly election promises they made. Some estimates put the government’s balance sheet black hole is as big as £30 billion ($US47 billion).
One money spinning policy that Morgan Stanley proposed was an overhaul to the council tax system — in effect a back door mansion tax — but another idea was devolution.
By putting local councils in charge of more service and more taxes, it shifts the spending commitments from the Treasury’s balance sheet. Devolution could also cut administrative costs as issues are dealt with closer to the source.
Here’s what Morgan Stanley said in its note:
“We do not expect benefit for the national budget at the point of transfer, but over time the national Exchequer may benefit if additional future costs are met through raising revenue locally, or if local expenditure management is more efficient.”
Manchester is already in charge of its £6 billion ($US9.5 billion) health and social care budget, and Morgan Stanley thinks tax collection could be localised for things like business rates.
This is good for the Conservatives as it helps them balance their books. However, there is a danger for devolved cities to become ghettoised. Poorer areas are often the ones that need the most investment and by putting cities in charge of both raising and spending money, it could entrench economic inequalities.
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