Cities across the country – particularly the big cities – should take some time to take a look at the report published yesterday by the 17-strong London Finance Commission, chaired by Tony Travers (of which I was a member).
It’s certainly not the first review of review of local government finance, but its focus on a place is really significant. Rather than trying to develop an approach that works for everywhere, this report focuses on how public money could be managed in a way that allows a world city to invest in the infrastructure it needs in order to deliver jobs and growth. The Commission worked hard to ensure both that the proposals would not be detrimental to the rest of the UK and that the principles developed for London could be applied to other big cities such as Manchester, Birmingham, Bristol and Leeds.
The report argues that providing for London’s forecast economic and population growth (to 10 million people by 2030) requires investment in all kinds of infrastructure, from transport and schools to housing, energy supply and technology. However, London lacks the financial autonomy to be able to back such investment, which would in itself yield additional growth and taxes. The mayor and boroughs keep about 7% of all the tax paid by London residents and businesses: in New York, it’s over 50%.
Key recommendations are:
Many of these recommendations build on existing Government thinking, such as devolution of business rates, and they resonate with arguments the Centre has been making about the need to remove the housing borrowing ceiling, expand TIF and devolve more local taxes. And, although it would not be easy for London’s complex system of government to manage additional devolved responsibilities, the report itself has been widely welcomed, not least by the Mayor in partnership with Jules Pipe, representing London Councils. The prize would certainly be worth the effort required to work out the best way of managing additional responsibilities.
The jury’s out on the Government’s reaction, however. Despite moves to devolution as a result of the Heseltine report, it’s fair to say that Whitehall and Westminster do not find it easy to let go of the purse strings, and the complex relationship between Boris and Cameron add a further dimension to negotiations.
Yet the model set out by the London Finance Commission is the kind of model that all cities should be considering and arguing for. City Deals have been a first step in gaining ‘licensed exceptions’ for major cities that make a significant contribution to the UK economy. The next step must consider how to give the country’s biggest and fastest-growing cities the ability to determine what infrastructure is required to support growth, and to fund it.
Too many local government finance reports have sat on dusty shelves for too long, regarded as tangential to policy debates about growth and jobs. This report shows how central local finance is to the growth that the UK needs. Let’s hope it has the impact it deserves, not just on London but on the wider debate about cities and how to make the most of their economic potential.
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