Ahead of the first budget of the new government, the Mayor of London, Boris Johnson has today urged the Chancellor not to cut spending in the capital. A new report published today commissioned by GLA Economics has found that investment in major infrastructure projects like Crossrail and the Tube upgrades is crucial for London to retain its competitiveness.
Reducing the national debt will require a combination of spending cuts, tax rises and critically, investments in key infrastructure projects, the report concluded.
The report was commissioned by GLA Economics and produced by Professor Tony Travers and a team at the London School of Economics (LSE) to look at public spending priorities in London found that:
- Capital spending in London appears to be at a low level in relation to GDP
- Public capital spending appears relatively low as compared to other world cities;
- Investment in infrastructure is key to increased productivity, output and tax revenue.
The Mayor has written to the Chancellor George Osborne outlining his priorities for London in advance of the emergency Budget on 22 June.
The Mayor Boris Johnson said: “I want to remind the Government that growth is essential to the health of our public finances. Only by continuing to invest in London and the South East- the engine room of the national economy- will the nation as a whole be able to grow its way out of trouble. The UK cannot afford the cost to the economy if the capital is starved of vital investment in infrastructure projects like Crossrail and the upgrade of the Tube.”
Tony Travers of the London School of Economics said: “The current method of allocating public spending around the UK takes into account different regions' and localities' needs - but has hitherto taken little account of their different propensities for growth. The ability of public sector investment to help generate tax receipts for the Exchequer should also be an important consideration at this time for the wider UK economy.”
Notes to editors:
The Greater South East contributes 43 per cent of the nation’s taxes, with London alone providing 18 percent. The capital has provided more in tax than it consumed in public expenditure every year since 1989 (with the exception of 1993/94). In 2007/08 its tax export was estimated to be between £14 - 19 billion.
Capital investment is a key determinant of economic growth. Under the previous Government, the Treasury forecast a decline by as much as 50 per cent in public sector capital spending. Contrasting this with London’s growing population and workforce, this imbalance could restrict London’s economic growth.
The Office of Budget Responsibility has been set up by the Chancellor to provide independent fiscal and economic forecasts and will report ahead of the Budget on 22 June.
Public capital spending as a proportion of the economy (GVA (2007-2008)) for all services (including transport and housing) in London was 3.4 per cent.
The Budget 2010 Report projected that public sector investment would fall by an average of nearly 15 per cent per year in real terms over 2011-12 to 2014-15.
Public services in London provide essential services for Londoners, London’s workers and visitors. Essential services do not just include help for those in need or spending on healthcare and education. They are also the activities which make it possible for London to continue as a world city with high productivity and growing output.
The report, Public Spending Priorities in London, shows that:
- London currently generates 18 per cent of the UK’s output and a similar proportion of tax revenues for the UK. However it only receives some 14 per cent of government spending. In 2007/8 it is estimated that London contributed between £14bn and £19bn to the rest of the country via a tax export. London is the heart of a wider region – the Greater South East. Together the Greater South East provides 43 per cent of all tax revenues in the UK.
- London has seen relatively fast growth in population and therefore increasing needs for public spending. While housing needs are projected to grow generally in line with the rest of the country, London faces particularly high and growing requirements for affordable housing.
- London has seen relatively fast growth in GVA and in employment, resulting in larger demands for both revenue and capital spending. This puts particular pressure on infrastructure requirements.
- The growth in GVA also means that London contributes an increasing proportion of national tax revenues which has not been reflected in increased spending.
- The analysis shows that public spending is largely based on a set of needs based rather opaque formulae which together turn out to produce highly stable spending totals over time. London’s spending has grown slightly faster than the UK as a whole over the last decade, but has fallen relative to output, with government spending only accounting for 28 per cent of output, compared to 40 per cent for the UK.
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