If John McDonnell imposed a ‘Robin Hood tax’ it really ought to be a London tax

Shadow chancellor John McDonnell’s proposal for a so-called “Robin Hood tax” on financial transactions in the City of London to help pay for public services has obliged him to respond to London Mayor Sadiq Khan describing the idea last July as “madness”. Khan said it would encourage financial sector businesses to move abroad – this would not be a happy outcome, especially as some are already relocating due to Brexit.

This disagreement within Labour is not new: Khan made known his opposition to McDonnell’s enthusiasm for the tax, and new taxes on business in general, in September 2105, shortly after becoming the party’s mayoral candidate. Disagreements about a tax of this type are much, much older. They go back to the the early 1970s, when Nobel prize-winning economist James Tobin came up with the original idea.

But whatever the pros and cons of extra levies on City trading, might McDonnell’s idea have been more appealing, and indeed more radical, if framed as part of a bold and progressive devolution plan for the capital?

The case for fiscal devolution to London government – its mayor and its 33 local authorities, including the City Corporation – has been clear and strong since the first report of the London Finance Commission, set up under Boris Johnson. Khan has had that case enlarged.

It holds that taxes raised in London would be spent to better effect if London government had direct control over this rather than the money being, as it were, handed back to it by Whitehall in ill-fitting packages with unhelpful strings attached. The fate of the coalition government’s work programme, launched in 2011, provides strong supporting evidence.

Labour’s draft manifesto, leaked last week, contains several attractive individual promises to London but also a lot of fuzziness about how key national policies would benefit it. Housing policy is one example. Devolution is another. The document promises a “constitutional convention” to address over-centralised power, but there are no precise commitments to enhance the autonomy, fiscal or otherwise, of London or any other major urban regions.

Oddly, McDonnell’s Sherwood Forest foray doesn’t appear in it either. Perhaps it will be in the final version. But there seems no chance that the idea will be linked to a bigger picture of how London might become more successful, including more equitable, were it given greater scope for running its own affairs – and, as a result, become able to help the UK as a whole even more than it already does.

Presented in such a context, the Robin Hood tax might be seen as less punitive and more progressive. It might therefore face less opposition: after all, the City and the mayor alike want the most productive possible public investment in transport, affordable housing and Londoners’ skills.

But Labour’s main objective for an election it is on course to lose heavily seems to be to shore up its core vote elsewhere. And so, as it stands, McDonnell’s call is more in tune with his subliminal populist theme of fingering “rich London” for discontents elsewhere than any higher vision of national renewal and how the capital could help to make it real.

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