Mayor endorses major new proposals for London devolution

27 January 2017
  • London Finance Commission proposes comprehensive devolution package for capital
  • Mayor believes proposals are crucial to protect capital from impact of Brexit.
  • Recommendations include a modest tourism levy and greater control over income tax, VAT and other tax revenues.
  • Proposals are intended to give London’s Government the tools needed to boost economic growth.

The Mayor of London, Sadiq Khan, today endorsed the findings of a major new report that calls for further powers to be devolved to the capital in the aftermath of the decision to leave the European Union.

Following last year’s referendum, Sadiq Khan tasked the London Finance Commission to bring forward a new, beefed-up set of devolution proposals, arguing that nothing should be ruled out when it comes to giving London a stronger voice and the tools it needs to protect jobs, wealth and prosperity.

Today, the Commission, a group of cross-party political and business leaders led by Professor Tony Travers from the London School of Economics, has published a comprehensive, wide-ranging suite of devolution requests that will be presented to ministers. This builds on an initial set of devolution measures for the capital proposed by the Commission in 2013.

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, in exchange for lower levels of government grant.

This would enable the City to operate more efficient, effective and integrated services, bring forward infrastructure investment vital for growth, and reform property and other taxes which do not operate well in London.

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.

The key recommendation of today’s report, entitled ‘Devolution: a capital idea’ are:

  • The government should work with the Mayor, London Councils and other local authorities to consult on the potential operation of a modest tourism levy which is already operated in international cities such as New York, Paris, Berlin, Rome and Amsterdam and would be used to promote tourism in London.
  • London’s government should be assigned a percentage of Londoners’ income tax yield – broadly to match its overall expenditure, as and when further devolution occurs.
  • If a larger share of public expenditure is devolved to London, the possibility of assigning a proportion of London businesses’ VAT yield to London’s government should also be considered.
  • The report 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 apprenticeship levy, due to be implemented from 2017, should be devolved to London in order to fund a wide range of skills and employment initiatives in the capital, as decided by London’s government
  •  A share of London’s contribution to vehicle excise duty (VED) revenue should be devolved for improvements to nationally strategic roads within the capital.
     
  • The Government should consider devolving air passenger duty (APD) raised in London to so that the capital has the flexibility and autonomy to consider making local adjustments to the tax and to provide more diverse sources of revenue.
     
  •  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.

Professor Tony Travers, London Finance Commission, said: “The vote to leave the EU makes the case for further devolution more acute. It cannot be assumed that the current degree of fiscal centralisation within the UK is the only way of doing things.

“At present, the centralised nature of UK government makes it virtually impossible for the Mayor and the boroughs to bring about the required structural change to address the types of inequalities Londoners face, from housing to household income.

“This report makes the case for a much more ambitious devolutionary settlement for London. It argues that by giving London government greater power over the tax base and public services, the city’s leaders would be provided with stronger incentives to develop its economy and opportunities to reform public services.”

The Mayor of London, Sadiq Khan, said: “I fully endorse the recommendations of this excellent report and would like to thank Professor Tony Travers and the London Finance Commission for examining this vital issue.

“London has the same population as Wales, Scotland and Northern Ireland combined, but we have far less control over how our economy and public services are run.

“Giving London more control would allow us to manage the current economic uncertainty in the aftermath of the EU referendum, giving London the stronger voice it needs so we can protect jobs, growth and prosperity for the future.

“Now is the time for the Government to seize the moment and unleash the spirit of devolution seen in other parts of the UK the capital can continue to drive the UK economy for decades to come.”

Cllr Claire Kober OBE, Chair of London Councils, said: “This report vindicates our long-held position, and delivers a clear message that Government simply cannot ignore. The Mayor and boroughs must be given new powers if we are to realise economic growth in London and the UK and prepare for the huge challenges that lie ahead. This is critical to being able to deliver the jobs, homes and transport that Londoners need.”

Steve Reed MP, a member of the All Party Parliamentary Group for London, said: The London Finance Commission has again produced a well-argued and evidenced report. It is persuasive in making the case for a bolder approach to devolution in England, one that allows London and other areas more control over the taxes generated, decision-making and delivery of public services.

The UK’s departure from the EU has made the case for devolution even stronger. Providing London’s government with a stable tax base to invest in the capital’s infrastructure over the longer term will send a clear message that London and the UK are open for global trade.

Cllr Jon Collins, Core Cities Cabinet Member for Finance and Investment; Leader of Nottingham City Council, said: “The London Finance Commission focuses on our capital city, but it also makes a strong case for Government to be more ambitious in giving all the great cities of the UK real powers to invest in infrastructure and to improve the living standards of their citizens. Even after the devolution deals of the last two years we are still a heavily centralised country.

Whitehall needs to loosen its grip and trust our cities to make the right decisions. Business rates will be devolved, and this needs to happen in a way which maintains the principles of fairness and distribution, but in a post-Brexit landscape we have to wake up to the fact that cities drive growth for nations not the other way around.

If we want all our cities to create more economic growth, jobs and raise living standards across the country, we need to get serious about creating more local control over public finances. Local people should have more say over how the taxes raised from them are spent. A better distribution of national growth is what we see across Europe, and an example we can learn from before we leave the EU.”

Chief Executive of London Chamber of Commerce and Industry, Colin Stanbridge said: “As our capital faces the challenges of an increasing population and an approaching Brexit, London Chamber welcomes this report as a means to mobilise political and business leaders to prepare for the future.

“London is forecast to achieve megacity status by 2030 with over 10million citizens. To caterfor that, retaining more London generated taxes and securing new competencies is be key.

“The London Finance Commission has offered 25 recommendations that will not only benefit the capital – but the wider UK.  As London grows, the UK grows; the procurement and supply chain of TfL alone provides contracts and jobs across much of the UK.

“London currently has to endure Whitehall centralisation to deliver the projects that will keep the capital competitive in a post Brexit world. To counter that, move with pace and service the London of tomorrow, more power and responsibility needs to be devolved to City Hall.”  

John Dickie, Director of Strategy and Policy at business group, London First, said: "London is a great city, attracting businesses, their people and visitors from around the UK and across the world. But our growing population is a huge challenge for London's infrastructure, from roads and rail to housing and utilities.

London's government needs more control of the taxes raised in the capital, so it can plan, fund and finance the investments this growing city needs."

Mark Fenwick, Chairman Fenwick & Founding Director New West End Company, said: “The London Finance Commission has produced a report that New West End Company members fully support and London business should welcome.

It sets out clearly why fiscal devolution matters – it allows for local taxes to operate more fairly with safeguards for business; it brings a strong economic incentive to decision-making with an increased tax yield over time to re-invest into London and it increases local accountability. We now have a real opportunity to integrate this report into the government’s industrial strategy to drive innovation, jobs and economic growth.

Bharat Mehta, Chief Executive of Trust for London, said: “The level of control Londoners have over finances generated in the Capital falls far short of most global cities. That’s why we need government action on the measures set out in this report.

But devolution must not stop at City Hall or even town hall. We must ensure that the voices of local communities and everyday Londoners are heard and respected when decisions are being made about how to spend tax money that has been raised locally.”

Matthew Bolton, Deputy Director and Lead Organiser for London Citizens, said: “Devolution of fiscal powers to London would bring decision-making closer to the people. Greater participation of citizens and proximity to communities in turn makes for better decision-making. Londoners want to be in the lead on devolution, not lagging behind other regions,and now is the time for Government to act."

For more information and to access the full report, please visit: london.gov.uk/london-finance

ENDS

Notes to editors

The London Finance Commission found in 2013 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.

Chair: Professor Tony Travers, Director of LSE London, London School of

Economics and Political Science

Dr Nick Bowes, Mayoral Director of Policy, GLA

John Dickie, Director of Strategy, London First

Len Duvall, London Assembly Member, GLA

Nicholas Holgate, Town Clerk, Royal Borough of Kensington & Chelsea

Alexandra Jones, Chief Executive, Centre for Cities

Sue Kershaw, UK Infrastructure, Head of Project and Programme Management, KPMG

Councillor Claire Kober, Chair, London Councils

Bharat Mehta, Chief Executive, Trust for London

Bob Neill, MP for Bromley and Chislehurst

Councillor Teresa O’Neill, Vice Chair, London Councils

Tony Pidgley, Chair, Berkeley Homes

Jules Pipe, Deputy Mayor for Planning, Regeneration and Skills, GLA

Ben Rogers, Chief Executive, Centre for London

Colin Stanbridge, Chief Executive, the London Chamber of Commerce and Industry