Partial reversal of Thatcher's local government castration

Manchester was mooted as a pilot city to keep more funds

The Conservatives' general election manifesto pledged there would be a few pilot schemes - in Cambridgeshire, Manchester and Cheshire East - to test the impact of giving local authorities the power to retain 100% of any incremental funds they raise from business rates.

Just a few weeks later, George Osborne has announced that the pilot would be, well, all of England.

I asked a senior minister why the Chancellor leapfrogged the trials and has gone for full roll out. The answer was one word: "power".

Or to put it another way, this is a government and chancellor feeling much more confident in where they're going than they expected.

So how big a deal is this devolution?

Quite big - though it is not quite the full reinvigoration of local authorities 25 years after they were castrated by Margaret Thatcher.

This is not comprehensive decentralisation of tax-raising and spending powers.

That said, it does put local authorities in competition with each other to attract businesses - by easing planning restrictions for example - and thereby increase their revenues.

But although local authorities will be able to cut business rates, they won't be able to put them up, unless that is they are cities like London and Manchester with directly elected mayors - and even then they'll only be able to put the rates up by 2p in the pound, to finance infrastructure, and only if businesses vote in favour in local polls.

Or to put it another way, George Osborne does not believe that citizens - who for the sake of brevity I will call "us" - should be able to vote for a party that feels businesses pay too little.

Also although the Conservatives' press release on this policy implies that all local governments' spending needs will come from locally raised taxes rather than central government grants, this is a bit misleading.

An important central government grant will be replaced by local authorities retaining a more-or-less equivalent amount of the money they raise from business rates.

But that may be best seen as an administrative reform, rather than one of huge economic substance.

The point is that a system of tariffs on flush councils and top-up payments for needy councils will remain in place.

And central grants to local authorities, for schools and public health, will be retained too.

Government in that sense will continue to direct some funds to the councils with the greatest gap between the requirements of people for social care and other locally managed services and their respective capacities to obtain cash from businesses.

That need-based redistribution from rich councils to poor ones is based on a 2013 assessment, which will be reviewed again in 2020.

Even so, George Osborne is holding out the prospect that the more entrepreneurial and creative councils can become relatively richer by becoming magnets for businesses.

Which in a long-winded way takes us to the rewards and risks of this kind of devolution.

On the one hand, it creates incentives for all local authorities to become friendlier to the private sector - and therefore may spur wealth creation that benefits the whole country.

But it could also seriously widen the gap between rich and needy councils - in the sense that councils with the most serious social problems, and therefore the biggest costs, may find it hardest to woo businesses to their areas, and therefore may find it hardest to increase their revenues.

And in a worst case, if one council is run by a business genius, and another by a business dumb-dumb, residents of dumb-dumb town could see important public services undermined by emigrating businesses

One more thing.

What may matter more to local authorities and us over the next few years is that today's devolution of tax-raising powers will not protect them from the swingeing cuts being forced on most public services.

Just like the rest of the public sector, except for schools, health, defence and overseas aid, they'll have to find savings of between 25% and 40% in this parliament.

Those deep cuts may be imposed in a backdoor way, by giving local authorities responsibility for services they don't current have.

So although some local authorities may feel like bursting into song about their imminent partial liberation from the dead hand of central government, like most of the rest of the public sector they still have to endure yet more falsetto-engendering belt tightening.