Local government is arguably one of the fundamental institutions of a free society. It ensures that local people have a significant degree of control over how the state acts in their community. Yet centralising instincts have dominated in recent decades and the central state’s power has increased at the expense of local government and other civil institutions.
This is contrary to the decentralisation advocated by Hayek, who called for a society formed from the bottom up by individuals and communities. In The Road to Serfdom, for example, he wrote:
‘Nowhere has democracy ever worked well without a great measure of local self-government, providing a school of political training for the people at large as much as for their future leaders. It is only where responsibility can be learned and practiced in affairs with which most people are familiar, where it is the awareness of one's neighbor rather than some theoretical knowledge of the needs of other people which guides action, that the ordinary man can take a real part in public affairs because they concern the world he knows.’
The market is the most efficient means of allocating resources but the state is still necessary to provide the legal framework within which a free society can operate. Independent and accountable local government is the best means of creating a state which is efficient and responds to people’s preferences. However, local government has lost its democratic legitimacy with consistently low electoral turnouts (for example, only 35% of the electorate voted in the 2009 local elections). This has fostered the perception of local government as a corrupt vested interest, which in turn has provided a rationale for centralising power at national level.
The government’s Localism Bill is an attempt to shift power back to local level but it is notable for what it leaves undone. Most importantly, it fails to deal adequately with the issue of fiscal autonomy. Council finances will continue to be strictly controlled by central government and as long as the central state holds the purse strings councils’ independence will in practice be severely limited. This is clearly a fundamental flaw in the coalition’s localism agenda. Clearly local authorities must raise a far higher share of their income locally if they are to gain a greater degree of independence and become more accountable to their electorates.