Back in 2013 I wrote an article for Lib Dem Voice setting out the case for London and other cities to have more financial control.
The vote to leave the EU makes the case for devolution and fiscal devolution more urgent. Whatever Leave voters felt they were voting for, it was not ‘business as usual’. It was not an endorsement of centralised power, simply removing it from Brussels to Whitehall and job done.
The referendum result not only affects the country as a whole but also within our nations, regions and cities. The uncertainties from Brexit may well be better managed at a local level, with local and regional government able to respond more effectively.
At present, virtually all taxation in the UK is determined by central government. Only council tax (and in England from April 2013, a proportion of business rates) can be seen as local taxation – and even this is subject to cumbersome controls, including referendum rules set by central Government. When you compare this internationally you realise what control Whitehall holds.
In the light of Brexit, the London Finance Commission has published a further report – Devolution: a capital idea. This calls for a new devolution settlement for London, which could apply equally to other city regions.
Professor Tony Travers, who chaired the Commission, correctly states it cannot be assumed that the current degree of fiscal centralisation within the UK is the only way of doing things.
Giving London and other places greater power over their tax base and delivery of public services could be hugely beneficial all round – allowing public services to be reformed and with everyone having an incentive to see their local economy develop and grow.
The overall approach that the Commission recommends is to bring London in line with most other global cities by allowing the capital’s government control over a much wider range of taxes – crucially in exchange for lower levels of government grant.
This would enable the city to operate more efficiently, effectively and integrate services, bringing forward infrastructure investment vital for growth at no additional cost to central government.
Modest devolution of this nature would also enable Whitehall to concentrate on the biggest challenge facing the country, leaving the EU and building new global trading relationships.
Key recommendations include:
- A modest tourism levy which is already operated in international cities such as New York, Paris and Berlin and would be used to promote tourism.
- A percentage of Londoners’ income tax yield – broadly to match its overall expenditure, as and when further devolution occurs.
- London’s share of the soft drinks industry levy should be retained within the capital, with a longer-term view to devolving it fully, including the ability to set the rate. In the longer term (post 2020), London government should also consider other health-related taxes, including a sugar sales tax and a saturated fat tax, to be devised and fully managed by London government.
The report also endorses recommendations from 2013 that the full suite of property taxes should be devolved to London’s government. This includes the operation and setting of council tax and business rates and the devolution of stamp duty.
The centralised nature of UK government makes it incredibly hard for real innovation at the local level. In London, the Mayor and the boroughs need further powers to bring about the required structural change to address the types of inequalities Londoners face, from housing to household income.
Moving to further fiscal and other service devolution would give local and regional government strong incentives to innovate and develop their areas.
I can only hope that out of Brexit comes a move to support London and our other regions. However with Conservatives in charge, I won’t hold my breath.
* Caroline Pidgeon is a Liberal Democrat London Assembly Member and Deputy Chair of the London Assembly Transport Committee
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15 Comments
Here’s another idea – with Brexit we can stop VAT for those places with over 2% unemployment rate ie no vat on goods and services bought in shops while keeping it higher for those places with higher unemployment. The other thing we can do is allow regions to compete on land and labour costs with assistance to hq in those areas competing with London. One final big answer in the coming decades is to move Parliament and the civil service away from London to the Midlands or the North.
`while keeping it higher for those places with higher unemployment` sorry i meant `lower`
Better still, reduce or abolish employers national insurance contributions for companies based in areas of high unemployment (and draw their employees from within that area).
It’s high time we stopped taxing employers for the privilege of employing people in places where there aren’t enough jobs to go round.
Good idea Nick Baird – about time the Lib Dems started having radical, innovative policies
Caroline, I’m afraid Scotland is not a region and post Brexit you may have missed the bus on that one.
Many of us outside regard London as an over priced inflationary bubble with malevolent effects north of the Trent. We can certainly do without paying for a High Speed train link to Birmingham coming on top of paying for Crossrail, – and perhaps you would like Trident to be based at Rotherhithe ?
James,
” … with Brexit we can stop VAT for those places with over 2% unemployment rate ie no vat on goods and services bought in shops while keeping it higher for those places with higher unemployment.”
I agree that we need radical and innovative solutions but your suggested change would be wide open to abuse and a nightmare to administer. Furthermore, I don’t see that it would have much impact on unemployment except to produce a small local increase in jobs for shop assistants.
How about allowing companies hq’d outside of London with sufficient staff to maintain that as a reasonable situation that pays all its taxes to the UK can trade without VAT in the UK?
James, Yes: It is a good idea to alter and reduce taxation to promote economic development in neglected areas of the UK. What better way to do that than by introducing Land Value Taxation (LVT) or Site Value Rating (SVR) as it has been known for the benefit of the localities within which it is collected. This would encourage employment and new housing in areas with lower land values that are currently perceived to be losing out to London. We have the policy but it needs to be promoted by campaigning. The following website links may be of interest in this context:
http://sharetherents.org/
http://georgist.com/6-2013-october-announcements-fred-harrisons-new-website/
https://libdemsalter.org.uk/en/
With the existing system of allocation of resources by central government there is always a divisive tension without any means of establishing consensus on whether it is fair that would not exist in respect of SVT or LVT collected and administered locally. London would not be seen to benefit at the expense of other areas and the reality of mutual interest in complementary development would be easier to understand.
James,
“How about allowing companies hq’d outside of London with sufficient staff to maintain that as a reasonable situation that pays all its taxes to the UK can trade without VAT in the UK?”
I’m afraid I don’t understand this; it may be my fault. Please clarify.
“One final big answer in the coming decades is to move Parliament and the civil service away from London to the Midlands or the North.”
Or create an English parliament and rotate the British house between the four nations? If Brexit was the opposite of endorsing centralisation then we should also move away from making political gains over the threat of a Scottish influence or only speaking about Wales when attacking Labour.
I hope Caroline is supporting the Labour Assembly members initiative on LVT.
https://www.london.gov.uk/press-releases/assembly/mayor-positive-about-a-land-value-tax-trial
This all sounds horribly like London exiting the UK… if you want London to keep more of its tax revenue does this not reduce redistribution or the ability of government to support regions through investment and longer term thinking.
You reference New York, only yesterday i read a report commenting on pockets of propserity in the US (e.g. New York) at the expense the of outlying regions. It is important London is a Global leader, but London’s prosperity cant be at the detriment to the regions.
I am in favour of devolution, but lets do it properly. Rethink the current system, increase representation of local people by making politics more competitive through proprtional representation (the Tories want to increase competition in every other sphere). Giving local people and politicians real power will afford real accountability and stop the Nigel Farage types of this world claiming that extreme measures are the solution. By increasing the diversity of poltical representation it can only add sincerity to the debate as no longer can people sit on the sidelines with no prospect of office and claim they could solve everything if only they were given the chance.
Drifted slightly off topic… In summary, devolution is vital but not with the aim of making London great.
Reading this as we await the results …
Chris,
“Drifted slightly off topic… In summary, devolution is vital but not with the aim of making London great.”
Agree fully with your views on devolution and that this must go hand-in-hand with ‘Fair Votes’.
There is proof that bringing democracy to the people would be the appropriate thing to do in the current situation.
Following the Panic of 1819 there was a move to extend the franchise. A move we had to follow with the Great Reform Act not too long after to avoid further revolt here.
Might be worth looking at President Andrew Jackson and our Great Reform Act for insight and inspiration. Useful to know what worked and what the alternatives could have been. There is a lot of similarity in the underlying issues.
At a guess, extending the franchise to 16-18 year olds and devolving power to local areas would seem an obvious step forward. The latter does also seem to be the desire of the people of the number of new councillors from local action/residents groups is taken into account.
The move to make Business Rates a “local tax” is based on a poor understanding of economics. It will also further widen the unfair advantage places like London have over the rest of the UK.
Unlike capital and income, land is not a factor “created” by human effort. Thus, unless the scarcity value derived from it is shared equally, it would cause inequality and a distortion of resource allocation.
Taxes should only ever be collected centrally, and redistributed on a strictly equal per capita basis. It is how share is spent or indeed refunded back to local people as a “dividend” that provides incentives for local politicians.