Phillip Blond & Graham Allen: We need a magna carta for true local government

What if everyone everywhere could make a difference to their neighbourhoods and their communities? For decades, people have bemoaned the gradual erosion of local authorities and the centralisation of, well – nearly everything. Happily, the principles behind the Government's Localism Bill achieved a great deal of cross-party consensus and support. The new power of competence for authorities to do whatever is not expressly forbidden; elected mayors and rights for self-organising citizens, for example, could herald welcome shifts in the balance of power between the central state and its localities. But to achieve radical and transformative benefits, we still need to go much, much further.

How would we all respond if local government were truly set free from the clutches of Whitehall? That is the challenge currently opened up by Parliament's Political and Constitutional Reform Select Committee, which is asking if we need to create a new and real financial and legislative autonomy for localities which can never, ever be rescinded by central government.

Since the central state can remove any independence currently given, the Select Committee has drawn up a proposed statutory code which would constitutionally protect local autonomy so much so that, for perhaps the first time, local citizens would be able to decide their own means of funding.

This proposal is already gaining cross-party support: it offers a real economic and legislative basis not just for localism but for independence. And, given the reduction of local government over recent decades to little more than an agent of central government, it would amount to the largest denationalisation ever undertaken and the restoration to the public of their ownership of local government. Now this is not just an argument for statist transfer – from central to local state – it provides the preconditions for an active "bottom up" citizenry with communities delivering services and fulfilling new roles.

If localism is truly to take root and flourish, petty interference from the centre must be denied any legal or financial basis and local government given unchallengeable legitimacy. This can be done in two ways. First, to guarantee their independence, local authorities must be created in law as independent and sovereign entities. They would then be able to undertake, as of right, all those duties for which they are elected locally. And local government, like any other public body, would have to perform its duties within a legitimate inspection regime and be held to account by any citizen. This independence must be protected from easy repeal, perhaps by amendment to the 1911 Parliament Act.

Second, political independence for councils would mean less than nothing without financial independence. Of all local authority spending, the bulk is now provided by central government and only a fraction (one eighth) raised locally by the council tax. This dependency culture must end. A radical new settlement is needed on taxation, with HMRC sending the appropriate tax take back to local councils via an independent redistribution commission. Central government could continue to be free to assist councils with funding on particular problems, just as the federal governments of the US and many European states do.

Local councils, assured that the funding of most of their expenditure was secure, could then be free to raise the remainder of their income via property rates, sales taxes or local bond issues. In a mature democracy, local authorities would be confident and competent enough to raise and spend what they decide is appropriate. Citizens knowing what they pay and why they pay it will constitute a firmer discipline and stronger bulwark against central interference than any statute.

Local authorities already have a record of financial expertise and economic management which outshines that of the central government that so often wishes to lecture them. However, as a constitutional safeguard, local authorities would be obliged to operate a "balanced budget provision" – a self-discipline operated by most US state governments. Local borrowing, providing its costs were met from annual income, would not be controlled by Whitehall. Well-managed local councils would gain Triple-A credit ratings, poorly run ones would fail to raise borrowing.

Throwing away the crutch of central government will be both frightening and exciting. There will be no one else to blame any more. Let local people decide on their spending, their services, on their electoral system or the use of direct democracy. This would also deliver a tremendous revitalisation to our all-too-moribund local politics. Once again, it would really matter who got elected locally and how well they were equipped to handle local government. We would recreate that invaluable network of citizen politicians of all parties, in touch with their communities, close to their constituents, empowered by and empowering their local areas.

The undemocratic relationship between the centre and the localities should not be sustained. Localism will either default back to Whitehall control or move towards a real independence and a true flourishing of our cities, towns and villages. Which would you prefer?

Graham Allen is MP for Nottingham North, Phillip Blond is Director of the Respublica think-tank. Send your views to the Political and Constitutional Reform Select Committee at pcrc@parliament.uk