The government’s intentions for Income Tax and Business Rates are clear in outline if not yet in some important details – City Hall will be very interested in those – with the Overnight Visitor Levy, better known as the “tourist tax”, is on its way too. As things stand, they will come into effect early in 2028.
These are the big components of what think tank Centre for Cities calls “a sweeping programme of fiscal devolution” that will see regional Mayors, including the capital’s, retaining more of the taxes raised in their areas and spending that money as they see fit, rather than seeing it disappear into the Treasury vault to be apportioned downwards later as Whitehall sees fit. For voters, the link between the taxes they pay and how they are made use of in the places where they live should be much clearer.
For advocates of fiscal devolution, all this looks very promising. It is a major break from the extreme centralisation that has long characterised the British state. The hope is that it will encourage Mayors and other elected local leaders to facilitate economic growth, because more of the proceeds of that growth will come under their control, and the more growth, the greater the proceeds.
But should the government go still further? Centre for Cities has today published an argument for adding Corporation Tax to what it calls “the first wave of fiscal devolution”. Corporation Tax, which even little On London has been known to pay, is the fourth biggest source of revenue for the Treasury, bringing in close to £100 billion a year.
Centre for Cities says past proposals for devolving it have been opposed on the grounds that it is “too complex, to easy to game, and too unfairly distributed across the country”. It then bluntly contends that “none of this is true” and goes on to build a five-point case, beginning by saying that Corporation Tax has similar properties to Income Tax, so why not? It goes on to cite examples from overseas, propose solutions to possible problems, suggest good ways to share it in order “to maximise the chance of good growth in every postcode” (Andy Burnham’s big aspiration) and model how Corporation Tax receipts would vary across the country and in comparison to other taxes.
The document acknowledges that the modelling part is “challenging at present” due to insufficient data of the right kind, but it makes some illuminating estimates. These show that if London kept five per cent of locally-generated Corporation Tax it would have the highest figure per resident of any region, followed by the West of England, but also that London is less far ahead of everywhere else on that basis than it is on Business Rates. It is also pointed out that London’s Corporation Tax receipts, though the highest in England, aren’t growing faster than those in other mayoral areas.
The point being made here is that Corporation Tax “presents fewer challenges for equalisation and fairness” than do the devolution of some other taxes while at the same time being “a major, pro-growth, pro-business reform”. Not as major as devolving Income Tax, but an important potential addition to it and the rest of the fiscal devolution package.
We will know by 28 October if the government is to succumb to the urging of Centre for Cities to “take another look” at bringing Corporation Tax into the scope of its fiscal devolution programme. That is the date Andy Burnham government’s first budget is to be unveiled by Chancellor John Healey, already trailed with promises that it will move “power and money out of Westminster and into every postcode around Britain”.
London government as a whole, both London Councils and City Hall, are keen on the principle of the greater autonomy that fiscal devolution would bring, but no one is counting chickens about the size of actual sums of money, as distinct from having control over them, that London might gain or lose as a result of the changes ahead. “Any new mechanisms to decentralise England must work for London,” Mayor Khan’s office remarked after the government’s “re-wiring the state” statement was published at the end of July. Devils, details etcetera.
Further info: Centre for Cities has taken a detailed look at fiscal devolution for London and recently reminded the world that London currently sends a huge sum of money to the rest of the country ever7 year (£49 billion at the last count). On 16 September, the think tank is holding an online event about fiscal devolution to England’s mayors and what it will mean for them. Register here.
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