There is a growing consensus that central government should devolve more tax revenues to City Hall, but I’d like them to go much further. The Mayor should have the ability to introduce ‘smart taxes’ and charges which reshape our city as well as raising revenue. The London Assembly then need additional powers to keep the Mayor in check.
London’s boroughs would also need new responsibilities and powers to be devolved to them, to ensure that the Greater London Authority doesn’t become over-burdened and we don’t replace rule from Whitehall, with rule from City Hall. The Greater Manchester agreement is showing how much is possible with a massive devolution of its £6bn health budget, which goes well beyond the London Mayor’s public health plan.
Boris Johnson wants stamp duty receipts, for example, while others argue that the Mayor should have the power to introduce extra Council Tax bands for the more expensive properties. There is a momentum behind the idea that property owners should pay more on the unearned income from rapidly rising house prices.
Of course, there’s always a chance that the Treasury could cut the grants for police and transport in proportion to this extra money, leaving the Mayor no better off.
So instead of just passing the income to the Mayor, why not let the Mayor design the property taxes best suited to London? The Mayor might change the rates to raise more or less money, for example. Scotland is heading that way, so why not London?
Even better, a mayor might replace a mess of existing taxes like stamp duty, the council tax precept, retained business rates, supplementary rates and death duties with a land value tax. This charges people who own land (including freehold homes) in proportion to its value, instantly replacing lots of confused taxes with a simple and fair system. But it also has some big advantages for London.
It would not only raise money to pay for public infrastructure in London, but also act as a brake on a runaway, boom-and-bust housing market by reducing the incentive to pay high prices and speculate on property.
In other words, it’s not just a way to raise money, it’s also a policy tool that could help address our housing crisis.
London has form on this.
The Congestion Charge was designed to regulate traffic and help central London function, as well as raise some revenue for public transport.
As successful as it has been, the technology needs updating to match the modern age of smart phones, Oyster cards and cashless payments. We need a system of pay-as-you-go driving across the whole of London and we need the Government to give City Hall that power. Road pricing is one of those policies that all the experts agree makes sense, but governments are too cowardly to introduce. The political will isn’t there to introduce it across the country, but there is a chance that people would go for it in London.
Again, the pay-as-you-drive charge wouldn’t just be about raising revenue.
London has a pollution problem and despite 13 years of traffic reduction, it still has a congestion problem. Our city may be able to cope with an extra hundred thousand people a year, but we can’t cope with an extra hundred thousand cars. In fact, any increase in cars is a problem, as car drivers simply take up too much space. The only way our roads can cope is if people swap their cars for more buses, bikes and people on foot.
So by reducing traffic across the whole of London, a pay-as-you-drive charge could reshape the city for the better, at the same time as replacing the congestion charge, vehicle excise duty and perhaps other more ‘blunt’ taxes and charges.
If the Mayor could implement both of these policies, he or she could really be onto a winner. One of the obvious things to invest some of that revenue in is new public transport, like Crossrail 2 or the London Overground connection over the Thames from Barking to Abbey Wood. But these would normally push up property prices in the area.
A recent study of Crossrail suggested that prices would rise by between 14-19% more than elsewhere in London due to the investment in public transport.
A Mayor who was able to put a tax on the value of land would get back some of that unearned profit from the rise in property prices and help to pay for the investment. The tax would also reduce the incentive to speculate on homes near the stations, and so reduce price inflation.
London’s boroughs would need to be part of this new agreement over smart taxes and to have a significant say on how these policies are shaped. There is a need to build consensus, but we need an even greater scale of ambition than Manchester where the ultimate aim is to localise over £22bn of government spending.
Both Mayors of London have shown that City Hall can innovate when it is given the power. I’d like to see devolution of taxes to be much more radical to give any Mayor of London, held in check by a stronger Assembly, real power to improve London.