Tuesday 18 June 2019 4:51 am

Let London take back control of its finances

Alexander Jan is chief economist at Arup.

As many a City A.M. reader will know, London is different from the rest of the UK in a variety of ways – and not just in terms of how it votes, its cultural mix, or its size and complexity.

There is also the amount of tax that London’s citizens and businesses pay. Recent figures put together by the Office for National Statistics highlight that the capital produces that rarest of economic entities: a fiscal surplus.

For 2017/18, some £34bn of revenue raised in London was spent elsewhere in the country. That’s around £4,000 for every man, woman and child in the city.

Without that transfer, public expenditure in London could have been as much as a third higher.  

London is one of only three regions where revenues raised locally are greater than public spending received, along with the South East and the East of England. London and the South East have recorded surpluses in 18 out of the last 19 years. With few exceptions, all other parts of the UK were in deficit for the whole of that period.  

Despite the popular conception that the capital’s citizens are disproportionately wealthy and can afford this multi-billion fiscal transfer, the case for rebalancing and giving Londoners’ money back to London is compelling.

The charitable foundation Trust for London found that four in 10 Londoners have income levels below what is required for a decent standard of living.

Some 27 per cent are in poverty after housing costs, compared to 21 per cent for the rest of England. And there has been a 50 per cent increase in the number working families suffering from poverty.

Giving London more control over its own finances isn’t just about fairness – it’s an opportunity for the next government to incentivise growth and prosperity in all parts of the country.

No one disagrees that our major cities are in urgent need of more housing and transport infrastructure. But it is much harder to persuade residents to back new homes or offices when they can’t see a direct link between development and the public services they receive.

To make that connection much stronger, the next chancellor should commit to reforming local property taxes in London and across England.

We need a radical plan to return the lion’s share of local revenues for public services and investment back to local councils and city-wide authorities – as is the case in most western democracies.

Local governments would then be free to raise more funds to deliver investment – or, if they wish, to offer tax breaks to stimulate growth and employment by the private sector.

Over the last 20 years, there has been some progress in devolving powers to cities, while Scotland, Wales and Northern Ireland have also seen reform.

With the prospect of many more years of political disruption and uncertainty in a Brexit-obsessed Westminster, there is a golden opportunity to let leaders of London and our other major urban areas get on with the business of delivering on the big challenges of the day – housing, climate change, air quality, and transport.

Sorting out local taxes and rebalancing London’s fiscal transfer would be a fine first step.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.