In the run up to the Greater London Authority elections on 3rd May, Centre for London will publish ten policy proposals for London – one a day over ten days. 

In selecting these, we have identified policies that are:

• Significant ideas that would make a substantial contribution to tackling London’s challenges;

• Practical – could be introduced over the next four years, before the next election;

• Cost-neutral – could be introduced without significant increased spending

• Innovative – new ideas that have yet to be widely proposed;

• Broadly devolutionary – in keeping with our belief that Parliament should continue to devolve more responsibility to the GLA and downwards to local government.

PROPOSAL #1:

DEVOLVE LONDON’S TRANSPORT INVESTMENT AND LET LONDON EMPLOYERS SET THEIR OWN LEVY.

Our first proposal is to scrap business rates – currently set by central government – and replace them with a levy collectively set by London’s employers. 

London is unusual, compared to other major world cities, in having very little say over tax policy and, more specifically, very little power to raise – or reduce – city taxes.  Around only 7 per cent of the London government revenue is raised directly by the city compared to 50 per cent in New York and 80 per cent in Tokyo.

We believe that this is not only wrong in principle – power should be devolved to the lowest effective level – but counter-productive.   Developing more power over taxation would allow the Mayor to design a tax system adapted to London’s circumstances. It would also give City Hall a strong incentive to invest in economic development, in the knowledge that a significant proportion of increased taxes would go directly into the city's coffers.  London is still suffering from decades of under-investment in its transport system, and while investment has increased over recent years – London Transport remaining relatively unscathed by the Coalition’s austerity drive – past experience shows we can’t always rely on national government to provide the level of investment the city needs.  

Against this background, there is a strong argument for abolishing business rates and replacing them with a local business transport levy.  Currently London employers pay around £5.4bn in business rates, which go into the national pot.  This is more or less the same amount as government invests into London Transport. Moving from the current system to the one we are proposing would not, therefore, be excessively complicated.

Given that London employers have a every interest in ensuring that London has an effective transport system, there is a strong argument for giving these employers a role in setting or approving the levy, perhaps through giving them a collectively binding vote on its size.  Our guess is that, given the chance, employers would choose to pay more, rather than less, for a better transport infrastructure.

There is a clear precedent for this policy in the form of Business Improvement Districts. A BID allows local businesses to come together to agree on a mandatory levy, on top of other business taxes, to be spent on improving the local trading environment.  To date, businesses have supported the creation of a BID in every area where they have been proposed.   In effect, our proposal is for a city-wide BID focused purely on funding investment in London’s transport system. 

A smaller scale version of our proposal was mentioned in this year’s budget – clause 2.28 if you missed it – so the door is open and this policy could be introduced within the next mayoral term.

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