Financial Times: UK’s cities and councils call for fiscal devolution

10 February 2020

By Andy Bounds in Manchester and Daniel Thomas in London

Councils in London and the UK’s biggest regional cities have joined forces to ask the government to let them raise more money locally to compensate for a decade of cuts.

In their Budget submissions, co-ordinated for the first time, the 32 London boroughs and the 11-strong Core Cities group — that includes Manchester, Birmingham and Glasgow — have asked for fiscal devolution. They want the right to introduce a tourism tax, borrow against future revenue and reforms to business rates and council tax.

With government grants cut by 60 per cent since 2010, local authorities say they need fresh sources of finance to provide essential services.

The Local Government Association predicts an £8bn budget shortfall nationally by 2025. Councils are responsible for social care, local roads and waste collection among other vital services. Peter John, chair of London Councils, a cross-party lobby group, said: “It’s time to end the culture of local leaders and mayors from all over the country being forced to go begging to Whitehall for handouts each year. Local communities know how best to promote economic growth and meet the needs of communities in their areas and we need to have the freedoms and powers to do so now.’

A tourism levy set at £1 per person per night in a hotel would raise £41m annually in London and £30m across the core cities, according to the organisation. In their proposals ahead of the March 11 Budget, the councils are also pushing for tax increment financing. Popular in the US, it allows local authorities to fund infrastructure by borrowing against future tax revenues generated by businesses investing because of a new station or tram track.

Business rates, a property levy, are collected locally but redistributed by Whitehall. The councils want to be able to retain all the growth in rates from new businesses, up from 75 per cent now. They would also like to see a reduction in the burden on struggling high street retailers and increase it on online companies.

Council tax is based on property values in 1991 and the submissions call for a revaluation at today’s prices, which governments have resisted because some people’s bills would go up while others fall.

The core cities, with a combined population of 6m, account for a fifth of UK exports and are asking for an urban trade fund of £1m per city to support post-Brexit trade. They also want £1m each for cultural festivals called “One United”, to showcase themselves to the world.

The cities’ concerns are shared by the CBI business group which also supports increased spending to help ‘level up’ the UK’s poorer regions, with its Budget submission estimated to cost more than £7bn in the first year alone. This is three times more than the organisation’s last submission, in 2018.

Among its recommendations are reform of business rates, a commitment to infrastructure such as the HS2 rail line — shared by the councils — and the creation of so-called ‘catapult quarters’ in every region of the UK to build on local business strengths and develop low carbon zones.

It also backed an increase in the R&D tax credit from 12 per cent to 13 per cent from April “to spur private investment”, but said that the government should delay the proposed tax on digital services such as online retailing and instead await agreement on a global scheme by the OECD group of developed countries.

Carolyn Fairbairn, CBI director-general, told the FT that the government could turn increased business confidence into economic growth. “The big prize is unlocking private investment to help level up the economy,” she said.

You can access the full article on the Financial Times website here.

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