The first meeting of the newly-established Council of the Regions and Nations that took place last week was an important step towards the new government delivering on its devolution pledges. It came hot on the heels of a report from the Labour Together think tank calling for elected Mayors to be given more powers and resources. The time is ripe for promises of greater devolution to be turned into the action essential for unlocking the potential of cities and regions across the country to support the government’s growth ambitions.
There is nowhere of which this is more true than London, which despite being an engine of growth for the whole of the UK has seen its devolution settlement lag behind those of other cities. The impact of this is stark: the capital remains the country’s most productive region but has gone from leading national productivity growth to lagging behind it. The city is also performing less well than many of its global competitors on this important metric. This problem affects the wellbeing of Londoners of all incomes and backgrounds – once housing costs are taken into account, a quarter of them live in poverty.
As we approach the 25th anniversary of the Mayor of London role being created, BusinessLDN, alongside regeneration consultancy Primera and three Business Improvement Districts (BIDS) within its portfolio – Central District Alliance, of which I am chair, EC BID and London Heritage Quarter – has published a report setting out the case for the capital being granted a trailblazer devolution deal on a par with those of Greater Manchester and the West Midlands.
In an era defined by rapid change, urban centres worldwide are reimagining their governance structures so that they better respond to the needs of their citizens. London, as one of the most dynamic and diverse cities globally, should stand at the forefront of this transformation. The broad case for fiscal devolution for London local government – and indeed our other great cities – is not merely a matter of distributing funds. It is also a crucial step toward empowering local authorities to deliver tailored solutions that reflect the unique challenges and opportunities faced by their residents.
For too long, London government has been constrained by a centralised approach that prevents it determining its own destiny. Nearly all financial decisions rest in the hands of the national government, a set-up that is virtually unprecedented in advanced democracies. In London, the Mayor and the city’s boroughs retain to use as they wish only around seven per cent of the taxes raised in the capital, with other money coming back from the centre with strings attached. By contrast, the equivalent figure in New York is more than 50 per cent.
This model has resulted in a yawning gap between top-down allocations and the actual needs of the city’s diverse population, as well as those for infrastructure and investment. Greater fiscal devolution would enable London government to raise and spend more of the revenue it collects in a manner that is directly aligned with city-wide and, crucially, borough level priorities. This would be good for London’s economy and also foster a more responsive and accountable governance structure.
As the report notes, the benefits of fiscal devolution extend beyond mere financial flexibility. Housing, transport, skills training and other public services all benefit from being organised with a local granularity and level of responsiveness that central government cannot match. London faces a housing crisis that requires innovative solutions tailored to specific boroughs. With greater fiscal powers, local government can implement targeted housing initiatives that address supply and affordability, rather than having to rely on one-size-fits-all national policies.
London’s BIDs have already demonstrated that their own version of fiscal devolution, under which a small proportion of business rates is collected as an additional levy, enhance the quality and experience of the public realm.
By allowing local government to retain a greater portion of the taxes generated within their jurisdictions, the BID community believes strongly that investment in local infrastructure and services can help London government stimulate economic growth and greater prosperity for all. A model that encourages a cycle of growth through improved local amenities leads to a thriving local economy that in turn boosts tax revenues, providing further resources for public investment.
At a time when the government has embraced economic growth as a top priority and recognises there is a democratic deficit in how our cities are served by local government, this new report provides a timely reminder of the role fiscal devolution can play in addressing these challenges. The time for tangible action on devolution for London cannot come soon enough.
Alexander Jan is chair of the Central District Alliance and Hatton Garden BIDs. Follow him on X/Twitter. Support OnLondon.co.uk and its freelancers for just £5 a month or £50 a year and get things for your money that other people don’t. Details HERE.