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In GK Chesterton鈥檚 novel The Napoleon of Notting Hill, a bored king decrees that each part of London is to display medieval heraldry, right down to swords and shields, hoping that it will bolster local patriotism and community spirit. But one local authority official 鈥� the Napoleon of the title 鈥� takes the command seriously. When the authorities attempt to build a new highway through Notting Hill, he leads fellow residents to war with other parts of London to ward off the threat.

This is all amusingly resonant for followers of recent government policy. Nevertheless, localism should be a good thing. England is possibly the most centralised country in the developed world. As residents of conurbations with populations of around three million, Brummies and Mancunians are powerless compared to their equivalents in Gothenburg, Toulouse or Munich. There is no political class and no levers of power to attract business. The centralisation of power in London is a process overseen by governments of every stripe since the Second World War.

It is hardly surprising that the financial clout of the country continues to shift south and east, to the capital and its satellites; twenty years ago there were still a number of multinational companies headquartered in the provinces; they are few and far between today. But it is political decision-making that has made this happen just as much as economic reality.  In any case, for growing cities such as Cambridge or Brighton to compete internationally, they will need the same powers and political levers as Hamburg or Malmo.

Both parties are to blame. It was the Conservatives, not Labour, that removed the financial powers of local government

Both parties are to blame. It was the Conservatives, not Labour, that removed the financial powers of local government, and the planning system that Eric Pickles describes as 鈥橲talinist鈥� was set up largely by none other than John Selwyn Gummer. Devolution and London excepted 鈥� and Boris Johnson is politically weak compared to his colleagues in New York or Paris 鈥� New Labour continued the process.

For all the rhetoric about the local and the community, the Coalition seems to be following the same centralising path; read between the lines and the polices are about communities engaging more with Whitehall, not with effective local government. The Communities Minister has said that councils will be allowed to raise taxes 鈥榦ver his dead body鈥� 鈥� perhaps understandable in the short term, given fiscal considerations, but surely a long-term anathema for a committed decentraliser. But the kernel of the Localism Bill is not about self-government; it is about housing and planning, or more specifically, development control. No other policy area is paid less strategic attention by the political class; but no area matters more when it comes to crude electoral tactics.

There may be a swathe of unintended (or maybe intended) consequences as communities self-define or as terms such as a 鈥檖resumption in favour of sustainable development鈥� become realities rather than abstract policies. But the real message is that strategic planning at any level above an upper tier local authority will no longer be enforced centrally. Instead, there will be an incentive, in the form of the New Homes Bonus, matching new council tax receipts for every new resident 鈥� which could be a considerable sum of money in some areas.

The short-term effects may be uninspiring, but the longer term changes these policies could force could surprise. Many in house building are so used to fighting tooth and nail with the local community, often resorting to appeals, that they cannot imagine communities welcoming housing. In some cases, they are right. In others, a more participative, conciliatory approach 鈥� and perhaps a better and more considered product 鈥� might reap rewards. In others, the desire to generate cash will trump other concerns.

The danger is that it merely accelerates the process of geographic polarisation that is already pervading our national life. Over the past twenty years, we have consistently built more houses in areas where demand is relatively weak and comparatively few in high-demand areas in the south-east. In short, we have built homes where there are no jobs (and now, no council funding) and have jobs where there are no homes (and no real change to council funding). Meanwhile, the financial crisis has left us with a situation where development cannot be made to work in the 鈥檍obless鈥� areas but will just about happen in the 鈥檋omeless鈥� ones.

The reasons for this are more complex than are usually supposed 鈥� the regional base of many of the major house builders, for example, is a factor 鈥� but planning, or rather local resistance to development, is at the core. There is little that will anger residents of leafy suburbs or villages more than the suggestion that someone might build houses near them. What many do not appreciate, though, is that it is a perfectly logical and predictable reaction. Owner-occupation is increasingly concentrated among the over-45s, who effectively treat the value of their house as their pension pot and any new homes nearby as attempts threats to their retirement. Moreover, it is concentrated in precisely those areas where demand is highest, where development viability the strongest and, surprise surprise, where planning consents are hardest to obtain.

Meanwhile, the concentration of planning consents in areas of lower demand is equally explicable. Tenants are not homeowners and inherently have less of a vested interest in low levels of housing supply; indeed, if anything, they would like their rents to decrease. Many younger tenants will aspire to settle somewhere else, perhaps those very same leafy suburbs and villages dominated by owner-occupiers.

The new homes bonus could, of course, circumvent some of this, and undoubtedly it will in some areas 鈥� particularly prosperous places with large numbers of young families, such as Milton Keynes. But the need for the cash will be most severe in areas hardest hit 鈥� the Core Cities and some parts of Inner London, notably Newham and Tower Hamlets. These are also, incidentally, the areas where there is the most dependence on public services. In places like Richmond-upon-Thames or parts of Surrey, the decrease in central grant is virtually zero, and there will be less of a need to delve into the new homes pot, particularly as residents鈥� need for the council is unlikely to extend much beyond refuse collection and road maintenance.

The unfortunate conclusion of all this is that 鈥� with a few exceptions 鈥� the bonus will tend to  incentivise planning consents in areas where development does not work and there is little demand for housing, and will have little effect where viability is strong and demand high. The story does not end there, though. The danger is that it will set up a vicious circle. By dampening supply in areas of high demand, it will push prices even higher in the most preciously protected areas, further bolstering residents鈥� desires to ensure their back yards remain unspoilt.

Perhaps this is too harsh. Talk of communities retaining the benefits of growth is to be praised. But one thing should be understood: those benefits accrue to a far wider constituency than the existing residents 鈥� not just those outside the area, but those who will one day live there. For example, if a town grows from 10,000 to 100,000 people, it is the 90,000 new residents who have probably seen their standard of living improve. People living in the next town may also find that job markets have improved. The 10,000 who originally lived there may have found that their lives have been disrupted and the value of their homes debased. But why, philosophically speaking, should their loss trump the greater gains of those who will one day live there, particularly if they are not yet of voting age? The difficulties of designing housing policy 鈥� which is ultimately about young people 鈥� in an country in which the majority of voters are middle-aged homeowners should not be underestimated.

The ultimate problem with localism as defined here is that our economic boundaries do not follow our administrative areas. The inspiration for the idea of incentives came from think tanks鈥� comparisons with the Continent, where city regions overlap less, are much more discrete, and command the loyalties of the surrounding countryside. Contrast this with much of the south-east: effectively a greater Greater London, something that would be more apparent had not strict landscape protections kept suburbanisation at bay. But residents of Surrey or Buckinghamshire are determined to believe they live in a pastoral idyll, ignoring the fact that their employment base or shopping or entertainment venues are at the other end of a train line anchoring them in a mega-city region. Meanwhile, conurbations such as the West Midlands continue to divide along parochial lines. A 10-mile car journey from Smethwick, two miles to the west of Birmingham city centre, to Water Orton, a village just into Warwickshire, will take you through three Local Enterprise Partnerships.

The Coalition has said that it aims to install mayors in our largest cities. But even they may not have the geographic reach to make a difference. The mayor of Manchester, for example, would have no powers in Salford or Trafford; it would be as if Boris Johnson were only responsible for six out of the 32 London Boroughs. The government is right in insisting that regions were too large. But surely there is a need for some strategic level between the local and the national, one that covers people of diverse backgrounds, diverse tenancies, diverse age groups 鈥� a varied 鈥榙emos鈥� that can plan together for future prosperity and avoid merely enhancing existing divisions and looking after their own? Localism could achieve this, but the incentives and the nudges need to be carefully designed. It is, fortunately, still a work in progress.

Jon Neale is a partner at King Sturge LLP