London is one of the world’s leading cities. It and its hinterland are comparable with the New York-New Jersey region and the Paris agglomeration. It has a powerful and developed political class and system of government. Yet its access to the taxes paid by its residents and businesses is on a par with a small rural municipality. This needs to change.
London is out of line with other cities in having access to only a single, capped, tax. New York, Paris, Berlin and Tokyo, among others, have a far wider tax base and more freedom to set rates. In 2012-13, just 5 per cent of all taxes paid in London were collected by the city’s government. The remaining 95 per cent went to the UK Treasury. A modest reform to business taxation in April this year adjusts these figures to 7 per cent and 93 per cent respectively. London’s politicians have severely restricted access to the taxation paid by their citizens.
Devolution to Scotland and Wales has provided a political dynamic that has led to pressures for a transfer of taxation powers to Edinburgh and Cardiff. Scotland will introduce locally-determined income tax in 2016, to join the land transaction and landfill taxes of the previous year. Wales is bidding for similar tax autonomy. Yesterday’s report from the London Finance Commission (LFC), which was asked by Boris Johnson, London’s major, to analyse the city’s fiscal position, found no evidence that devolution had damaged the economic progress of Scotland or Wales. Indeed, the practicalities of establishing the Scottish tax regime suggest there are no insuperable obstacles to the devolution of tax powers to any part of the UK.