Shifting the balance

If we’re to see the true realisation of the devolution agenda, then London must be granted tax raising powers. That much is obvious. Greater financial autonomy for our capital is vital in securing London’s growth and that can only be a good thing for the rest of the UK. It defies logic that our city’s future economic stability continues to be held in the hands of the chancellor and government departments with such little comparable knowledge of the capital’s needs. It’s time the baton was passed to city government.

In 2011, the London Finance Commission was established after Boris Johnson pledged to lobby for reformed funding arrangements for the capital. Its task was to investigate the potential for greater devolution of taxation and control of resources to London. The outcome of the investigation was a resounding agreement that London could, and indeed should, be granted greater financial autonomy. But five years on from the commission’s formation, very little has changed.

Devolution has long been on the political agenda and the rhetoric from the current government about dishing out powers to devolved institutions, and even some city government, has come in thick and fast. Scotland and Wales are frequently at the front of the queue whenever Whitehall acknowledges the need to loosen its grasp on some mechanisms of the state and shift power into the eager embraces of devolved governments. David Cameron is even on the record as saying “we are delivering on devolution in every part of the UK.” And yet, London appears to be the exception to that agenda.

London’s ignored calls for increased financial autonomy are noticeable on a global level. Its status as an international powerhouse is unrivalled by most, and yet, Britain’s guarded approach to constitutional reform has left our capital sticking out like a sore thumb. At the time the London Finance Commission’s report was published just 7 per cent of taxes raised in London were determined by our city’s government, with the equivalent figure in New York surpassing 50 per cent. And national pride isn’t all that’s at stake. Economic growth, underpinned by investment in infrastructure and jobs, is a priority for any global city. Many rightly argue that it will be more readily secured when London holds its own purse strings.

The nucleus of the Commission’s pitch for more devolved powers is the belief that there would be more jobs and growth in London if the city’s government had greater self-sufficiency concerning its own finances. In its vision for how this would look, the Commission advocated the relaxation of restrictions on borrowing and the devolution of all property tax revenue streams (to include council tax, business rates, stamp duty land tax, annual tax on enveloped dwellings and capital gains property disposal tax). Such a move would strengthen London’s capacity to make targeted investment in the infrastructure projects it determines necessary. It’s an exciting approach, but one completely at odds with the status quo which forces the mayor of London and boroughs to go cap in hand to the Treasury to pitch for funding for individual schemes.

Nevertheless, there is an appetite for change. Those in regional and local government, academics and representatives of business, have all bought into the concept of tax raising powers for our city. There’s little reason to predict a less welcoming reception amongst London’s voters who are increasingly familiar with the challenges plaguing London’s infrastructure and thus unlikely to reject proposals which strengthen London’s capacity to meet those challenges.

This year, London’s population hit 8.7million, an increase of roughly 100,000 people on last year. And it’s not expected to stop there. Over the next few years, the capital’s population is set to pass the 10 million mark. Whilst this could bring many benefits to London, particularly in terms of skills and economic growth, it will also put additional pressure on our already buckling infrastructure.

Overcrowding on the tube network is an everyday occurrence. London’s housing crisis also became entrenched under the previous mayor. We face a schools places crisis, with the Greater London Authority Intelligence Unit predicting that 60,000 new primary school places and 105,000 new secondary places will be needed by 2024/25. Like all capital cities, London’s challenges are unique. So it flies in the face of common sense not to apply bespoke remedies, formulated by the different branches of London government working in partnership.

Any shift in the balance of power is subject to initial problems during the transitional phase and the resistance to change can be strong. It’d therefore be naïve to propose that a move to financial autonomy would be exempt from these common events. Indeed, the London Finance Commission set out three such barriers to further devolution in their report. Firstly, it identified that public expenditure reviews are set up in such a form that they prevent a move away from the priorities of individual government departments. Secondly, it suggested that removing London from the control of central government would weaken departments and ministers. Lastly, it identified the concern that any threat to London’s growth would have significant ramifications for the wider UK economy.

There are further issues that would need to be addressed in advance of London taking the reins over its funding arrangements. If London is to wield more power and fiscal autonomy, then that immediately increases its accountability. That in turn must be met with increased scrutiny and there will need to be an open discussion about what checks and balances should be carried out by City Hall. This could trigger a request to revisit the established role of bodies such as the London Assembly. Moreover, any new governance arrangements would have to be balanced in a way that is agreeable to both City Hall and the boroughs.

Achieving a new financial arrangement will be unsettling and yet not one of these challenges is insurmountable. The reason greater financial autonomy has so many advocates is because the anticipated benefits outweigh the anticipated problems. Nobody disputes that the economic health of the UK is dependent on the economic health of our capital city, which is why this transition doesn’t sit comfortably for some. But the message from the London Finance Commission is clear – “If London had enhanced fiscal capacity to back such investment, there could be an enhanced level of capital spending which would, in turn, produce additional growth and yield tax.” The successful implementation of fiscal reforms for the capital doesn’t therefore promise benefits solely to London, but to the wider UK economy too. That’s not something to be scoffed at.