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LSE Professor calls for London to have a greater say over its taxes

The London Finance Commission, chaired by LSE’s Professor Tony Travers, has released a new report calling for greater financial freedoms for the capital, giving London government the autonomy to invest in its own vital infrastructure as its population and economy grow, and bring London in line with competitor global cities.

TonyTraversThe London Finance Commission’s report outlines a comprehensive package of devolution measures to give Londoners a more direct say over a greater proportion of taxes raised in their city. It concludes that London government could better promote its own economic development by devolving financial and fiscal control rather than relying on the current formula of majority Government grant. The Commission has established there is a broad consensus amongst the capital’s key organisations in support of reform.

‘Raising the Capital’ found that only seven per cent of tax paid by London residents and businesses is redistributed directly by locally elected bodies (the Mayor and borough councils). This contrasts with other world cities; for example, 74 per cent of London’s funding comes from centralised grants, compared to 31 per cent in New York, 25 per cent in Berlin, 17 per cent in Paris and eight per cent in Tokyo. London is also a ‘tax exporter’, home to 13 per cent of the population but generating 18.5 per cent of the national tax take.

The report concludes that current funding mechanisms are inadequate to cope with London’s predicted population growth of one million over the next decade. It sets out recommendations to better provide investment in the infrastructure needed to prepare the city for this growth.

The key findings and recommendations are:

  • Existing funding models for basic infrastructure are inadequate to cope with predicted growth – London needs fewer constraints and greater devolved powers making it more accountable to its residents and businesses;
  • A failure to invest in London will hamper forecast demographic and economic growth – sustained investment is needed into transport, schools, housing, energy supply and technology;
  • The report proposes devolving the full suite of property tax revenues streams - this includes council tax, stamp duty land tax and business rates – with the ability to reform those taxes while retaining prudential rules for borrowing for strategic capital investment. This will provide stable and continuous funding for prudent investment, moving away from ad hoc financing for specific projects;
  • A recommendation that London could introduce smaller new taxes, a power now being introduced in Scotland;

  • The Mayor, London Councils and London Enterprise Panel develop and maintain a long term, high level capital investment plan for the city;

  • With enhanced fiscal autonomy, London could re-invest additional tax yield directly back into the city. The report’s proposals are revenue neutral at the point of devolution, no additional money is being sought beyond that which London already receives;
  • The report finds this is a formula applicable not only to support the growth of London but other large cities across the UK.

The Mayor of London Boris Johnson and Mayor Jules Pipe, Chair of London Councils, the group representing the capital’s 32 borough councils and the City of London, have welcomed Professor Tony Travers’ findings in full.

Professor Tony Travers, chair of the London Finance Commission, said:‘London needs greater financial autonomy to drive growth and deliver better infrastructure. Wales and, in particular, Scotland are moving towards far greater discretion over taxes. London should be treated similarly.  Indeed, other cities in England could follow London down the route to greater financial accountability and self-determination.  England is far too centralised and the London Finance Commission’s pragmatic proposals would be a first step towards a more sensitive and popular democracy.’

The Mayor of London, Boris Johnson, said: ‘I want to thank Professor Tony Travers and the London Finance Commission for examining this vital issue of how the motor of the UK’s economy is best serviced in the face of massive predicted population growth and increasing global competition. This excellent report sets out the case for a fairer deal for Londoners, one that gives residents and businesses a closer say over where their hard-earned taxes are spent. It recognises the acute need for London to be able to better plan and finance the infrastructure needed to prosper and maintain a great quality of life, in the face of a decade of expansion. Crucially, we can see that providing London with fiscal freedoms does not come at the detriment of other regions but can in fact help London to generate more jobs and growth across the country.  

‘The current system is simply not fit for purpose and is out of step with the funding settlements enjoyed by cities of comparable size and stature. Furthermore, Londoners will increasingly question why London government cannot enjoy similar fiscal freedoms as those afforded to the devolved governments in Scotland and Wales. London’s key bodies are agreed that the capital’s financial future lies in greater devolution. We will now be taking this case to Government.’ 

The London Finance Commission report can be found here: http://www2.lse.ac.uk/government/Publications/LFC-Report-Raising-the-capital.pdf|

15 May 2013

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