The Government’s bold agenda to transfer more power, resources and accountability from Whitehall to local leaders will only succeed if London’s devolution settlement is improved so that the city can play its full part in better powering growth across the country. That’s according to a new report from the capital’s leading business group, BusinessLDN, and the Central District Alliance and London Heritage Quarter business improvement districts.
Its publication follows the Cabinet’s statement on Rewiring the State, which committed the Government to publishing a fiscal devolution roadmap alongside the Autumn Budget next month and a white paper detailing how and when reforms – including greater local control of tax revenues, transport, housing and education – will be implemented.
The report, ‘A New Deal for London 2.0’, sets out how wide-ranging devolution ambitions should be turned into action at pace. Its recommendations include:
- giving city-regions with a proven track record the ability to borrow against future revenue streams to encourage investment in growth-boosting infrastructure,
- enabling local leaders to retain a greater share of locally raised taxes – such as business rates – which can be grown through their decisions, and
- providing more flexibility to use innovative funding models to pay for priority projects such as the Bakerloo line extension, West London Orbital and – eventually – Crossrail 2.
John Dickie, Chief Executive at BusinessLDN, said: “The Government’s devolution plans can play a pivotal role in unlocking London’s full potential as an economic powerhouse for the whole UK. Giving mayors greater powers to lead on the delivery of infrastructure projects, affordable housing and education will help to ensure they are better tailored to the needs of local businesses and communities. At the same time, allowing local leaders to retain more of the tax revenues raised locally will incentivise them to take decisions that drive growth, and to reinvest that income in a way that will boost the economy. The Government should now move at the pace of the fastest to realise the full benefits of devolution, giving places with proven track records like Manchester and London the tools they need to deliver.”
The report argues that converting existing revenue from government grants into devolved funding streams owned by local leaders would encourage them to back growth-enhancing policies, even when politically difficult.
In London, this approach could take the form of the city receiving a share of tax receipts equivalent to the current level of government funding it receives before then keeping a material part of the uplift in income driven by future growth. This would help to create the conditions for increased investment by incentivising local leaders to grow this income stream. And with the vast majority of any future tax growth in the capital continuing to flow to the Treasury, this would be a win-win for London and the rest of the country.
The report also has specific recommendations on devolution for London in transport, housing and skills.
On transport, it calls for removing, or at least significantly increasing, the £500m threshold above which locally funded transport schemes still require government approval. It advises combining this change with greater flexibility for the Mayor of London to finance growth-enhancing infrastructure, including the ability to borrow against future revenues and use tax increment financing and land value capture models to help fund priorities such as the Bakerloo Line Extension and West London Orbital and, ultimately, Crossrail 2.
On housing, the report calls for mayors to be given full flexibility to use their allocations from the Social and Affordable Homes Programme as they see fit, thereby enabling them to tailor spending according to local need.
And on skills, the Government is urged to proceed at pace to devolve full responsibility for the development of vocational skills to mayors to enable better, more joined-up approaches across different stages of education. The report sets out how this could pave the way for tighter integration between skills, employment support and careers services, including through the launch of a one-stop job centre and a London-wide careers service for all ages.
Ruth Duston OBE, Chief Executive of London HQ, added: “The next phase of devolution must give London the confidence and capacity to plan for the long term. Bringing decisions on transport, skills and infrastructure investment closer together would help create the conditions for lasting economic growth. Partnerships like BIDs can support this by bringing sustained business commitment and hyper-local knowledge to those long-term ambitions. Building on our 2024 report, we need a settlement that enables government and business to plan, invest and deliver together, to ensure we all benefit from the growth potential of this world-class city.”
Alexander Jan, Chair of Central District Alliance, said: “London is within striking distance of finally seeing its financial freedoms restored to match its economic responsibilities and maturity as a leading world city. Retaining a bigger share of locally-generated tax revenues – including any growth, can help us to finance and fund the infrastructure and services that underpin the capital’s long-term success and generate prosperity for the country as a whole. Our updated report sets out how a stronger settlement rooted in the government’s proposed reforms, can support investment in Greater London whilst crucially sustaining its contribution to the wider prosperity of the country.”