Absolute power - why HMT's iron grip is bad for democracy
3 min read
Harriett Baldwin, a former chair of the Treasury Select Committee, argues that the power afforded to Number 11 can have unintended and negative consequences for democracy
They can take money from your pay, change the value of your home, your pension, the prices of the goods you buy and the sums you can pass on to your children.
If you don’t pay, you could end up in court, evicted or in prison.
Chancellors are the most powerful people in the country. Often more powerful than Prime Ministers and Bank of England Governors.
A Chancellor with 400 Members of Parliament behind them is powerful in a way very few previous Chancellors have been.
The only entity that is more powerful than a Chancellor with a massive majority is the gilt market and financial markets more generally. External shocks like novel Coronaviruses and evil invaders like Putin can also throw their plans into disarray.
In the UK the Chancellor’s huge power is highly concentrated, with few other parts of the state able to do much to raise revenue. The Scottish Parliament has some income tax-raising powers, some areas of local government have some discretion in tax-raising but in the UK most of the revenue is raised centrally and allocated centrally. While other countries have local income taxes and local sales taxes, the UK has never embraced these ideas.
Council tax covers only a part of the spending of the police, local councils and fire authorities and their ability to increase taxes is constrained by the need to hold a referendum.
Nor can many parts of the UK Government borrow. Unlike many countries around the world where States or Provinces can issue debt, UK local government is almost completely dependent on central Government for any borrowed money.
This drives voter behaviour. Turnout tends to be lower when it doesn’t directly affect your taxes too much. Thirty per cent is a typical turnout for local elections. In France, where about half of taxation occurs at the local level, turnout rises to fifty per cent for local election. And while US state legislature elections attract lower turnout than presidential elections, the gap between the two is smaller than in the UK between the General Election and local elections. Voters care more when there is more taxation power at stake.
Should this change? There is no question that taxation and public spending is very centralised, and that the Treasury has too much power centrally. In theory, I am all in favour of change to a more local approach. I’d like more freedom for local government to choose to do more in accordance with local voters’ wishes. I’d like more voters to care about who runs their council. Unfortunately, in practice I see these freedoms are likely to be used only opportunities for extra layers of government and higher levels of taxation.
Perhaps it will only ever be possible to change this dynamic of more tax, more spending and more borrowing by a centralised Treasury if the gilt market and the financial markets force the change.
Look at how the London Mayor has added costs on top of Council Tax bills and how the Scottish Government has been quick to raise taxes above the national levels. Rare is the politician, like Lord Ben Houchen, who makes a virtue of low tax and is rewarded for it electorally.
Perhaps it will only ever be possible to change this dynamic of more tax, more spending and more borrowing by a centralised Treasury if the gilt market and the financial markets force the change.
Certainly, it’s not a power I see a Chancellor giving up voluntarily.
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