Incoming Prime Minister Andy Burnham is facing fresh calls to devolve more fiscal autonomy to London after new research showed the capital has the weakest tax powers of any major G7 city.
By Kumail Jaffer, Local Democracy Reporter
Credit: London Assembly
Incoming Prime Minister Andy Burnham is facing fresh calls to devolve more fiscal autonomy to London after new research showed the capital has the weakest tax powers of any major G7 city.
Mr Burnham, who is set to enter Downing Street on Monday, has vowed to devolve powers away from Westminster towards Mayors and local leaders in a bid to drive “good growth” across the UK.
New analysis from the Centre for Cities think tank shows that the Greater London Authority (GLA) currently relies on central government more than other major cities in Canada, France, Germany, Italy, Japan and the United States.
Unlike New York, Tokyo or Paris, City Hall has no access to local income taxes and only limited control over property taxes. Less than a quarter of the GLA’s £23.9billion budget is funded through business rates and the Mayoral precept portion of council tax.
It means that City Hall must spend the vast majority of revenue – 77 per cent – on day-do-day operations, primarily policing and transport, with the meagre capital spend mostly going on housing and transport.
This limits the capital’s ability to invest in infrastructure and harms the national economy through lost growth potential, according to the analysis.
On the contrary, if fiscal devolution increased the city’s economic output by a modest 1.75 per cent, a rate that is consistent with OECD modelling, it would add £10.5 billion to the UK economy.
Centre for Cities is now calling on ministers to allow London to retain a broader range of locally generated tax revenues to strengthen incentives for growth, make it easier to borrow for major infrastructure projects, and improve accountability, while remaining compatible with national redistribution between places.
Chief Executive Andrew Carter said: “London is one of the greatest cities in the world, but when it comes to its own tax powers it is very weak.
“This is the UK’s most fiscally empowered city and still it has constraints that set it apart from its peers internationally. Devolving more powers could add billions to the UK economy. It’s why the next phase of the devolution agenda should prioritise fiscal devolution to the UK’s metro mayors.”
London managed to obtain some devolutionary powers through the recently passed English Devolution and Community Empowerment Act, including more licensing powers over nightlife and dockless e-bikes.
The Mayor will also have the ability to impose an overnight levy on visitors to London to raise revenue, but it has not been confirmed how much money raised will be retained by City Hall.
Sir Sadiq Khan, who told the Local Democracy Reporting Service (LDRS) last month that he is upbeat about Mr Burnham’s devolution agenda, said: “The UK remains one of the most centralised countries in the world. We have clear evidence that devolution works, improving public services and driving economic growth regionally and nationally.
“I’ve long been calling for greater fiscal devolution for the capital. This would bring us into line with other global cities like Paris, Tokyo and New York, reducing our reliance on national government and enabling us to invest in the services that London needs most.
“It would mean we can make our own choices about how we invest locally and help us to continue building a fairer, safer and greener London for everyone.”
Mr Burnham has not laid out specific plans for devolution yet, but said last month that he will spearhead a decade-long plan to transform the country by transferring power out of Whitehall and giving regions the ability to control essential utilities, transport and housing.
The Ministry for Housing, Communities and Local Government (MHCLG) was contacted for comment.
