Borisopolis: The Taxing Question of Funding London

James Ford was an aide to Mayor of London Boris Johnson (2010-12) and is an expert on London politics. He currently works as an adviser to both PLMR and the London Chamber of Commerce & Industry.

This week Mayor of London Boris Johnson published Raising the capital, the report of the London Finance Commission that he appointed to look into the GLA’s revenue raising powers last year. Raising the capital is a bold pitch for greater control of London’s tax revenues, and a very brave affront to the Chancellor who, in just a few weeks’ time, will pronounce on how much money the Mayor will have to spend over the next three years.

The cross-party Commission, which was led by ubiquitous London expert Professor Tony Travers of the LSE, urges the Treasury to not only grant the Mayor greater freedom to borrow money to invest in capital projects such as transport or housing but also to devolve to London government all the money raised in London via property taxes (which includes council tax, stamp duty, business rates, the annual tax on enveloped dwellings and capital gains property development tax )and the power to set the level of these taxes. The Commission also recommends giving the Mayor the ability to consider introducing new smaller taxes and suggests that in future London government could potentially be given a share of London’s income tax revenues. The property tax receipts for London alone are worth an estimated £12.3bn this financial year alone – roughly equivalent to half of all GLA and borough spending (excluding schools) currently funded via central government grants.

To make its case, the Commission’s report highlights how limited London’s fiscal autonomy is compared to other UK regions and other comparable cities around the world. For example, while just 7 per cent of the taxes raised in London are retained by either the Mayor or the boroughs the equivalent figure for New York is over 50 per cent.

The issue that is no doubt playing on the mind of the Chancellor is not so much what happens if Boris is granted these far-reaching tax powers, but what happens if – god forbid – the voters of London decide to ditch the classical city-state of Borisopolis in favour of becoming the People’s Republic of London under a Labour Mayor at a future election? Boris’ capacity for mischief making pales in comparison to the conflict that could be created between a Conservative Government nationally and Labour Mayor with financial semi-independence.

Party grey beards will remember the bruising battles between the Thatcher government and Ken Livingstone’s Greater London Council in the early 1980s. The GLC’s attempts to raise the rates in order to cut public transport fares by a third led to a lengthy and costly legal battle and ultimately contributed to the government’s decision to abolish the GLC (and with it city-wide local government for London) and split its powers between Whitehall and the boroughs. Indeed, the radicalism of the GLC and its impact on Labour’s reputation nationally was a major reason why Tony Blair resisted Ken Livingstone’s bid for the Labour nomination to be Mayor in 2000 and why Gordon Brown’s Treasury initially refused to hand control of London Underground to the newly devolved government of London.

This is not the first time that Boris has floated radical proposals for greater powers. In 2010, following the formation of the Coalition Government, he published an ambitious manifesto urging that the GLA be given control of the Royal Parks, the Port of London Authority, and rail franchises. While some of his devolution proposals were successful, the Mayor failed to realise any of the more ambitious demands (the Royal Parks, the PLA and rail franchising all remain under Whitehall’s control). With just three years left until he leaves office, Boris does not have much time to make progress on these latest, and far more radical, tax proposals.

PLMR’s consultant team includes members of all three major political parties.  In the interest of stimulating healthy debate, unmoderated,  personal views are very much encouraged in blog-posts.

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