The so-called fiscal event of last Friday has largely been rounded upon – and not just by the markets. The Institute for Fiscal Studies, a respected think tank which is usually pretty mild mannered in its observations, commented that “no attempt has been made to make the public finance numbers add up” and that “the plan seems to be to borrow large sums…put government debt on an unsustainable rising path, and hope that we get better growth.” Even the Daily Telegraph had columnists saying “doomster” Rishi Sunak was right to warn about Trussonomics.
The markets’ reaction has been dramatic. Analysis by Bloomberg estimates that 50 billion dollars – yes, billion – or these days pounds has been wiped off UK debt and equity markets since Liz Truss came to power. And this could be only the beginning. Some, including Mark Littlewood of the Institute of Economic Affairs, see the Chancellor’s statement as the first move in a much wider game of “economic chess”.
But what, if anything, does the government’s relentless focus on growth mean for London? As sharp-eyed pundits have noticed, it is the first time in a long while that London has been mentioned in a major ministerial speech in a way positive way. Policy impacts went much further.
Whatever one thinks of the plan to revive bankers’ bonuses, the Chancellor was prepared to talk about encouraging business to come to London rather than settle in Frankfurt, Paris, or New York. Then there was the (widely welcomed) commitment to restore tax-free shopping. Because London is the centre of international aviation and much high-end retail, this change will help London and its high streets more than other places.
With respect to changes in personal taxation, analysis by the Resolution Foundation indicates that those living in London and the South East will see over three times the gain of those living in the North East, Wales or Yorkshire. This is before changes to stamp duty are taken into account – £6,300 for the first-time buyer in London versus no gain in the North East of England.
The Chancellor’s advisors will have found it hard to miss that any pro-growth shift needed to focus on Zone 1 in particular. They will have worked out that central London and Canary Wharf together account for around 11% of UK economic activity from just 0.01% of the UK’s land mass, and generate nearly 20% of all business rates. And they will have seen that in a good year, such as 2019, London provided a fiscal surplus to central government of some £40 billion.
What should our collective response be to this major change in policy?
London government and business should together identify and champion policies and projects that are important for Londoners and the future of the city, and which deliver growth for the government. These include fiscal devolution, enabling, the very least, a larger proportion of the growth in property tax yields in London to be retained by the capital’s local authorities. This would provide a powerful local incentive for councils to support growth, as it would give them additional resources to improve public services for their residents.
Stalled plans for Crossrail 2 and an extended Bakerloo Line should be reactivated. Both of these projects could facilitate a major boost in housebuilding and regeneration. With borough and business support, a carefully drawn “enterprise corridor” running from Marble Arch through Oxford Street and Holborn to Liverpool Street could be developed. This would tackle the high vacancy rates and the “sweet shop problem” at street level and make the most of the Elizabeth Line’s potential for supporting a boost in economic growth and employment.
Consciously or otherwise, being more pro-London marks a major shift in government thinking yet also, ironically, signals a return to a Treasury orthodoxy which regards the City and London more generally as a source of fiscal surplus to be spent elsewhere in the country. The goose that lays the golden eggs has, however, not always been well fed. This time we must ensure that it is.
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