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The fiscal devolution struggle will continue even with united mayors’ might

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LGC’s essential daily briefing 

The London Finance Commission’s second report has been framed as a roadmap for fiscal devolution, not just for the capital but for the rest of England as well.

Speaking at the launch of the report on Friday, London’s mayor Sadiq Khan said while some of the finance commission’s recommendations were “within reach of our city now” others would require “more work to persuade the government of our case”.

Proposals range from the conceivable extension of control over existing revenue streams, such as council tax and business rates reliefs and discounts, to those that would require the Treasury to relinquish some of its own income streams, such as VAT, income tax and stamp duty, which seem considerably less likely.

Lying somewhere inbetween are proposals for “locally specific taxes” such as a hotel levy or a tax on sales of products high in sugar or saturated fat.

Commission chair Professor Tony Travers described the report as “radical by British standards” if not international ones; the report quotes research showing local and regional government in the UK has control over just 1.6% of taxation revenue, compared with nearly 16% in Sweden and 11% in Germany.

Professor Travers told LGC the sector needed to take a “careful” approach to convincing central government of their case and suggested the new breed of combined authority mayors would act as a powerful lobbying force once in post in May.

The report talks of making “common cause, both economically and politically” not just with other cities but also county regions. However, it suggests it will be necessary to phase any changes to “provide central government with the confidence that new forms of institutional machinery will work effectively”.

Many of the commission’s arguments for reform are compelling. On property taxes for example, they say council tax, business rates and stamp duty are outdated and operate in isolation solely to raise resources, rather than acting as a lever to make “the use of property more rational and efficient” and tackle issues such as the housing shortage.

They also argue that in the wake of the vote to leave the European Union, London and other cities must be given greater fiscal freedoms to develop new trading relationships while central government is tied up with negotiating terms for withdrawal.

The commission, which first reported in 2013, was reconvened last year partly in response to the Brexit referendum where London’s resounding remain vote put it at odds with much of the rest of the country.

Today’s report from the Centre for Cities underlines just how much urban areas could stand to lose through a poor deal with the EU, it found even a 10% post-Brexit fall in exports to the EU would require the number of exports sent to China to nearly double to make up the money lost.

Sadly, it is difficult to see this government mustering much enthusiasm for sharing the wealth, even if local government in London and elsewhere promises significant public service improvements in return.

Many outside of London will also be wary of handing the capital a greater share of taxes raised in the city, given the relative scale of its prosperity. In an apparent bid to calm these nerves the commission proposes London would share the proceeds of any growth in income tax or VAT above the national average.

Whether the new crop of mayors in Greater Manchester, the West Midlands, and elsewhere will put aside regional competition to unite around London’s call for reform remains to be seen.

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