Think tank proposes new tax deal for London mayors

Central government grants to mayoral authorities, including the Greater London Authority (GLA), should be replaced by a system of sharing income and corporation tax, according to a report by the Centre for Cities think tank. The proposals aim to provide London with greater fiscal autonomy and control over its finances.

Current Funding and Proposed Changes

Read Next in Barnet Press4 min read

Think-tank: London should share income and corporation tax

Centre for Cities proposes replacing central government grants with a new tax-sharing deal for City Hall.

Currently, the GLA receives approximately £2.16 billion annually in central government grants, which equates to £237 for each London resident. The Centre for Cities suggests that ministers should allocate 2.3% of the income tax raised within London and 0.8% of the city's corporation tax to the GLA. This new arrangement is intended to match the value of the current grant and provide the mayor with significantly more budgetary control.

The think tank's report highlights income tax as the primary source for mayoral authority funding, describing it as the "workhorse of the local finance system." Corporation tax, while a smaller component, would act as an incentive for growth as it would be exempt from equalisation, a process where excess funds are shared among different mayoral authorities to ensure fairness. This structure would allow for unlimited retention of corporation tax revenue, capped at the recommended 0.8%.

Benefits of Fiscal Devolution

Related Borough Coverage3 min read

TfL moves closer to launching public bus company

Transport for London is set to discuss bringing franchised services in house with private operators.

Oscar Selby, an analyst at Centre for Cities, stated that these changes would empower the mayor to "have much more control" over City Hall's finances. He explained that an increased local tax base, driven by economic development and pro-growth policies, would directly translate into more resources for public transport, housing, and local services. This would reduce reliance on direct appeals to the central government for funding.

Bassam Mahfouz, Labour's oversight spokesperson on the London Assembly, supported the calls for greater fiscal devolution. He commented, "London is the engine of the UK economy. But too often we find ourselves [going] cap in hand to Whitehall for access to the funds that we generate." He added that the ability to raise and retain more taxes is essential for meaningful devolution and for investing in areas like housing and transport.

The report also suggests a 'Swiss style' system for distributing funds among mayoral authorities, where a levy on income tax revenue exceeding a defined threshold would be redistributed annually to support less affluent areas. Business rates reform is also proposed to incentivise mayors to stimulate economic growth. In London, a current arrangement sees central government receive 33% of business rates, the GLA 37%, and boroughs 30%. The report recommends devolving the government's share to all mayoral strategic authorities.

If implemented, these proposals could see an estimated £21.5 billion devolved to mayors over the four years leading up to 2030, based on historical growth rates. This contrasts with London retaining "barely 6% of all the tax paid by Londoners and businesses" according to a 2019 City Hall report, compared to much higher percentages in cities like New York and Tokyo.

Future Possibilities

While the current government is unlikely to grant significant new tax-raising powers to mayoral strategic authorities, plans for an overnight visitor levy could provide mayors with an additional revenue stream by early 2028. This levy would be a percentage of accommodation costs, with the rate in London not expected to exceed 5%.