Incoming Prime Minister Andy Burnham is facing fresh calls to devolve more fiscal autonomy to London after new research showed the capital has the weakest tax powers of any major G7 city. The Centre for Cities think tank found that the Greater London Authority (GLA) relies more on central government than counterparts in Canada, France, Germany, Italy, Japan and the United States.
London's limited tax base
Unlike New York, Tokyo or Paris, City Hall has no access to local income taxes and only limited control over property taxes. Less than a quarter of the GLA's £23.9 billion budget is funded through business rates and the mayoral precept portion of council tax. This means City Hall must spend 77 per cent of its revenue on day-to-day operations, primarily policing and transport, leaving little for capital investment.
Chief Executive Andrew Carter said: “London is one of the greatest cities in the world, but when it comes to its own tax powers it is very weak. This is the UK’s most fiscally empowered city and still it has constraints that set it apart from its peers internationally. Devolving more powers could add billions to the UK economy. It’s why the next phase of the devolution agenda should prioritise fiscal devolution to the UK’s metro mayors.”
Potential economic boost
According to the analysis, if fiscal devolution increased London's economic output by a modest 1.75 per cent — a rate consistent with OECD modelling — it would add £10.5 billion to the UK economy. The Centre for Cities is calling on ministers to allow London to retain a broader range of locally generated tax revenues to strengthen growth incentives, make borrowing for major infrastructure easier, and improve accountability, while remaining compatible with national redistribution.
Recent devolution steps
London recently obtained some devolutionary powers through the English Devolution and Community Empowerment Act, including more licensing powers over nightlife and dockless e-bikes. The Mayor will also be able to impose an overnight levy on visitors, though it is not confirmed how much revenue City Hall will retain.
Sir Sadiq Khan, who told the Local Democracy Reporting Service (LDRS) last month that he is upbeat about Mr Burnham's devolution agenda, said: “The UK remains one of the most centralised countries in the world. We have clear evidence that devolution works, improving public services and driving economic growth regionally and nationally. I’ve long been calling for greater fiscal devolution for the capital. This would bring us into line with other global cities like Paris, Tokyo and New York, reducing our reliance on national government and enabling us to invest in the services that London needs most. It would mean we can make our own choices about how we invest locally and help us to continue building a fairer, safer and greener London for everyone.”
Burnham's devolution pledge
Mr Burnham, set to enter Downing Street on Monday, has vowed to devolve powers away from Westminster towards mayors and local leaders to drive "good growth" across the UK. He has not laid out specific plans for London but said last month he will spearhead a decade-long plan to transfer power out of Whitehall, giving regions control over utilities, transport and housing. The Ministry for Housing, Communities and Local Government was contacted for comment.
