By Daniel Hunter
In an historic move, London and England’s largest cities have united to call for greater financial freedoms enabling local politicians to better direct growth to drive their local and the national economy. Together these cities account for over half England’s economy and around half its population.
This cross-party initiative is the latest in a series of calls for more substantial devolution. In particular, it follows the publication in May this year of Professor Tony Travers’ London Finance Commission report, ‘Raising the Capital’, which recommended a comprehensive package of measures to give Londoners a more direct say over a greater proportion of taxes raised in their city.
The report outlined the benefits for London of devolving financial and fiscal control rather than relying on the current formula of majority Government grant. It also found that this was a formula applicable not only to support the growth of London but other large cities.
As a next step, the Mayor of London, Boris Johnson and London Councils (the group representing the capital’s 32 borough councils and the City of London) have now formally joined with the Core Cities group (representing Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield) calling for a suite of fiscal reforms for England’s larger cities.
The aim is the devolution of property tax revenues streams — including council tax, stamp duty, land tax and business rates — with the ability to reform those taxes while retaining prudential rules for borrowing, similar to recent changes in Scotland. This would provide stable and continuous funding to stimulate economic growth according to local needs, moving away from ad hoc financing for specific projects, allowing cities to raise sustained investment for vital infrastructure such as transport, schools, housing, energy supply and technology.
The campaign’s proposals would be cost neutral at the point of devolution, with no additional money being sought from the national pot beyond that which the cities already receive. The reforms would give effect to the spirit of the Coalition Government’s agreement to promote ‘radical devolution’.
The key principles of the ‘City Centred’ campaign include:
• Cities need freedom to invest to drive the national economy — together London and the Core Cities equal more than half the English economy and half its population, whilst cities internationally are on the rise. Existing centralised funding models are ineffective in supplying the investment cities need to maximise their growth potential;
• Empowered cities can be more competitive and can be incentivised to grow faster — England is one of the most centralised states in the world and its cities need more freedom to develop a competitive environment and create jobs. Only seven per cent of tax paid by London residents and businesses is redistributed directly by locally elected bodies (the Mayor and borough councils), while the majority of London government’s budget is received through central government grants. This contrasts with other world cities; only 31 per cent of New York‘s budget comes from central grant, 25 per cent in Berlin, 17 per cent in Paris and eight per cent in Tokyo. In most developed countries, top cities usually outperform the national economic average, yet in the UK only London consistently does so, which suggests that the Core Cities' potential remains unexploited. If their economies were unlocked just to meet the national average, it could equal at least £1.3 billion additional growth into the national economy;
• Local leadership delivers better results — currently around 95 per cent of all taxes raised in a city go directly back to government coffers, with money coming back with strings attached. Greater control for cities of taxes raised locally would deliver more power to join up public services and plan for future needs, as city governments are best placed to create jobs and free up spending. The findings of the London Finance Commission set out how this would provide the incentive and the ability for cities to become financially self-sustaining, increasing the tax base and enabling cities to reduce demand on public services and spending in the long term. The campaign also proposes the ability to raise smaller, new taxes following democratic processes such as elections and public consultation.
The Mayor of London, Boris Johnson, said: "That London’s government is joining with England’s largest cities to call for change is an historic and significant move. It’s a partial but positive and practical answer to the conundrum about English devolution and I believe it is good not just for the cities involved but for the country at large.
"My aim is for the capital to win fiscal reforms in line with those presented by Professor Tony Travers’ excellent London Finance Commission report, namely those that give residents and businesses a closer say over where their hard-earned taxes are spent.
"This will enable politicians elected by Londoners to plan and finance the infrastructure we need to prosper in the face of a decade of expansion. By the same token, this formula can be applied to cities across England, ending stop-start finance settlements and instead providing a reliable stream of funding to enable investment, jobs and growth."
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