‘Money, Power and Control’ – How one Coalition legacy may be the eventual devolution of London

Tony Travers, David Lunts, Eleanor Kelly, Andrew Carter

Future of London’s first 3-2-1 session was on London governance and finance three years after the general election. It focused on how the recommendations of the London Finance Commission might help offset cuts to local government funding while taking forward some of the localism agenda’s most promising elements.

The June 13th event was chaired by David Lunts, GLA Executive Director for Housing and Land, and led by Commission Chair and LSE Professor Tony Travers, with responses from Eleanor Kelly, Chief Executive of Southwark Council and Andrew Carter, Director of Research and Policy and Deputy Chief Executive at Centre for Cities. Links to podcasts of their presentations and the Q&A are below.

The commission was established by Mayor of London Boris Johnson to find better ways to finance London governance. Some groundwork had been laid with the Layfield and Lyons reports, but Travers said while they made useful points, virtually nothing came of them. More recently, Scottish and Welsh reports have shown that “devolution is a process, and not an event” – Travers said the commission wanted to pursue that line and “to see ourselves as part of UK-wide devolution, and part of – within England – city policy as well.”

As to the current situation, Travers said research commissioned from the University of Toronto was “crystal clear that the UK and within it, London, are extreme outliers in terms of their capacity to raise and control taxes…if you look at the taxes raised by sub-national government in the UK – that’s all government including Wales, Scotland an Northern Ireland and all local government – all their taxes as a share of GDP total 1.7% of GDP. That means central government is controlling virtually all the taxes. This 1.7% OECD figure compares with about 5% in centralised France, and all other countries have numbers bigger than that. So Britain’s an outlier in this regard.”

“London is also an outlier when compared with New York, Berlin and Paris,” said Travers, “in terms of the number of taxes and the yield of the taxes controlled by city authorities. And this means that much more than those cities, London has to go to Whitehall for all the money it requires – certainly to make any investment, and that’s the key point.”

The commission’s written and oral evidence heard no rallying cry for a London city-state, however. Most “suggested greater decentralisation of finance, power and decision-making, but nothing too radical.” Looking at the research through a lens of increasing population and density, it became obvious to commissioners that London’s need for new infrastructure will only intensify, as will the need for locally controlled funds to deliver it – despite public-sector austerity that Travers fears will continue to 2020, and which “can “be a constraint on thinking radically.”

The group was also mindful of central government’s growth agenda. Travers said evidence was “broadly neutral” on whether devolution would produce financial gain, but while “it can’t show faster growth, [it] also doesn’t show slower growth.” Research has proven that under devolution, people believe they’re getting better public services, and are more content with the services they receive, which would be a major boon for London boroughs.

“Only radical by London standards”

“Our recommendation boils down to the fact that London needs a wider, more liberated tax base to allow it to make decisions about borrowing to fund investment more simply.” In essence, the proposals would see the full suite of property taxes gathered in London retained in London, shifting from about 5% of taxes retained (based on 2012-13 council tax) to about 12%. Travers stressed the proposals are “only radical by London standards” and leave 88% of tax revenue generated in the Capital in the hands of central government.

Also central to the commission’s argument to Whitehall and the rest of England is its proposal to reduce central grant to London by the amount of tax revenue retained, at least at the outset. At the same time, a key part of its message to the public and the business community is that it doesn’t advocate increasing the tax base at the outset either.

The report does propose urgent loosening of restrictions on capital investment, especially by housing associations, and in future, it does allow scope for more complex proposals, including the potential to link business rates to council tax rather than the Retail Price Index, to slow and smooth rate increases. There could be provision for new taxes on anything from “tourism to transfats”, but at the outset, the recommendations rock the boat as little as possible, and are careful to insist that the Greater London Authority and London boroughs must agree the way forward.

In closing, Travers reminded the audience that there is growing precedent for devolution at various levels, such as City Deals and Community Budgets, and that England’s nine ‘Core Cities’ had endorsed the report. If London paves the way, others are likely to follow – unless, with their less complex governance and finance relationships, one or more of the others doesn’t try first…

What about the rest of England?

From his pan-UK research perspective, Andrew Carter confirmed that elements of devolution were already underway across England, at least until the economic crisis put the brakes on. He said other factors in the slow-down were an assumption that cities were “doing okay”, and an underestimation of people’s resistance to change. He acknowledged the varying fortunes of English cities, and said central government “should allow places to benefit from their luck” in position, markets or governance. With the evident appetite for more local control shown by the core cities’ endorsing the report, all eyes will be on the post-commission process in London.

Is it time?

From her own background in local-government finance as well as authority management, Eleanor Kelly summed up much of public and political opinion about the report, saying, “What’s not to like?…The devil is in the details.” Kelly felt devolution to London – or any other city, at any significant level – could be hard to sell to central government: “If you have ‘money, power and control’, do you want to give them up?” She said even the public contentedness with service delivery that devolution can generate could make government “jealous” that good feeling is ascribed locally and not to central government.

Still, Kelly was largely optimistic. Speaking of her experience of the cycles toward and away from central control, she reminded the audience of the initial resistance to the devolution of Scotland and Wales. She also said the timing may be good. The Coalition has pushed control to borough and community level through Localism, and required that local authorities become more economically self-sufficient. It also wants to encourage growth, which report authors and supporters believe devolution would do.

Finally, she noted the broad support for the report’s findings. As Travers had said earlier, the Lyons report was dismissed by government the day it was released. At least in its broad strokes, the London Finance Commission report has had few detractors to date, within or outside government.

The devil’s in the details

Given all the positive feeling evident, session chair David Lunts urged the audience to find something to dis-agree with, and they obliged. People cited the potential for a growing have/have-not divide between London and places with a weaker tax base; the fact that community budgets are turning out to be less flexible than promised; the possibility that local authorities wouldn’t redistribute or raise taxes out of political self-preservation; the difficulty of “ring-fencing London”; boundary issues within Greater London; and the potential for service-delivery defaults if things went wrong at local or GLA level.

In the end, all acknowledged that there will be a long trajectory toward devolution before any of this is settled. With borough, mayoral and central elections all on the horizon, it will be interesting to see if the appetite for greater London control over finance and governance stays as sharp.

Podcasts: 

Tony Travers

Andrew Carter

Eleanor Kelly

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