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Alex Jones: Mayoral borrowing a step towards full fiscal devolution

Alexandra Jones
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With Brexit negotiations set to dominate British politics for the foreseeable future, the government under pressure to demonstrate the resilience of the UK economy and George Osborne now on the backbenches, there was always a question about whether devolution would be as high profile in this year’s autumn statement as it has been in other keynote Treasury speeches in recent years.

Yet, while there were no announcements about major new deals, Philip Hammond did helpfully reaffirm the government’s continued commitment to the devolution agenda, and made two notable statements on devolution. Firstly, he revealed London would gain more responsibilities for adult education and delivery of employment support for the hardest to help. Secondly, he announced that the new mayoral combined authorities coming into place in May 2017 would be given extra borrowing powers to “invest in economically productive infrastructure” (subject to agreeing a borrowing cap with the Treasury).

While details on this policy are still scarce, the chancellor’s announcement is a welcome step towards supporting the new mayors to make spending decisions that better reflect the needs of their local economies. The new borrowing powers will give the new mayors greater flexibility over investing in infrastructure, housing, transport and other areas which require capital expenditure.

But despite these borrowing powers and previous chancellor Mr Osborne’s decision to devolve business rates (on which the new government is currently consulting), we remain a deeply centralised country. Local authorities in the UK currently have responsibility for just 19% of their spending, compared to 48% for local government in France and 64% in authorities in New York.

As the government considers how to support growth and rebalance the economy in the years ahead, fiscal devolution that incentivises city regions to grow should be an important part of the mix. Devolution of all land and property taxes to local areas, for example, would give local government control over 37% of local spending – still lower than France – and incentivise all areas to develop their tax base and invest in infrastructure and new housing.

Without further powers over the money spent and raised in their areas, new mayors will still be relatively restricted about the decisions they can take to boost local economic growth. That would be a huge opportunity missed in the battle to boost productivity and economic growth as Britain forges a new role in the world in the years ahead.

Alexandra Jones, chief executive, Centre for Cities

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