The core functions of the State

Before we argue about stuff like taxation, MPs' expenses, the European Union, Iraq/Afghanistan and the like, the first thing that we ought to agree on is "What things can we only do collectively; by force if necessary and which have to be paid out of taxes?"

To my mind, it's a fairly short list:
1. Police, prisons, law and order, legal system (i.e. enforcing private contracts where one party is taking the piss);
2. Defence (not 'attack' - I am a pacifist-libertarian), border controls, immigration and anti-terrorism;
3. Public health (in the narrow sense);
4. Flood defences, fire service, coastguard;
5. Road maintenance and street lighting;
6. Supervising (not 'regulating' - I mean supervising) banks and utility companies (sure these are private, but too important to be ignored - without these nothing else functions).
7. For some reason, Greenies and NIMBYs think it's important that The State strictly limits planning permission and land use to suit their narrow interests, so I'll chuck that in the pot for now (this is a potential source of tax income rather than a cost, but we'll come to that later).

Apart from that I can't think of much.

Then the next decision is "Which of these things can be dealt with at local level?", remembering that there are economies and diseconomies of scale to all these things.

I would suggest that the basic rules of legal system; defence etc and banking supervision has to be at national level. Everything else should be at local level.

Now, having accepted that these are core functions (i.e. stuff that 'adds value' but which free markets cannot provide, or, even if free markets would provide them, there would be too many 'free riders') the question is who is going to run them? I'm afraid that the only answer can be 'democratically elected representatives' aka politicians.

(Finally, there is stuff that is not a 'core function', like redistribution (whether in cash, or as health or education vouchers) on which everybody has their own view, whether we have this (paid out of taxation, and if so, taxes on what) ought to be subject to some sort of referendum. And there is local stuff that is not a core function either - but which is clearly a public service - like public libraries, free museums or subsidised post offices, which can be decided locally by referendum and paid out of local taxes).
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Nearly eleven years later, an update to this.