Option 2: further decentralization
This alternative could consist of giving London more decentralized revenue-raising powers, possibly accompanied by further decentralization of service delivery – local taxes for local services.
London wants to be able to make its own way and control what it spends money on, which is why 72% of Londoners voted to establish the Mayor of London and the London Assembly in 1998 and why the evidence shows that Londoners want a Support further “fiscal decentralization regardless of age, gender, race, location and wealth”.
Additionally, London is already the international outlier, with Paris, Berlin, Frankfurt, Madrid, Tokyo and New York already having greater control over revenue generation than London.
But increased powers to increase revenue don’t necessarily translate to higher taxes.
Nothing prevents politicians from being elected to implement the “managed decline” scenario or find other solutions if voters want it.
London’s democracy is alive: Various politicians from different political parties have won the elections and secured various mandates.
It has had a busy media scrutiny of decisions not only at the London level but also by the national media.
London’s elections provide ample assurance that mayors and MPs are prudent with Londoners’ money.
So what powers to increase sales could be delegated? Here are three options:
The full range of property taxes (council tax, business tax, stamp duty, property tax, annual self-contained housing tax and capital gains tax) could be fully transferred to the London government.
The mayor and counties already have revenue-raising powers over some of these taxes, but more powers not just over amounts, but also over valuations, ranges, and rebates could help improve the fairness and effectiveness of some of these taxes.
For example, lower-income people currently pay more council tax as a proportion of their income than higher-income people (according to the Trust for London). So if a mayor wanted to progressively lower or raise the council tax, they would currently not be able to.
An alternative to full decentralization of wealth taxes is the introduction of a “rule” (determining a certain proportion of tax revenue) for income taxes or for employers’ taxes.
The second London Finance Commission recommended using part of income tax for expenditure in London.
In addition, the Paris “versement transport” increases employers’ social security contributions by about 2% for investing in public transport and maintaining low public transport fares.
The final option is to give the mayor and assembly more powers to levy and issue taxes on motor vehicle ownership and use.
The most debated of these is the Vehicle Excise Duty (VED): an income-boosting tax on motor vehicle ownership, the proceeds of which are currently fully remitted to the Treasury.
Then there are the vehicle taxes, over which the mayor already has control (the congestion charge and the ultra-low-emission zone), but the goals of these systems are not to increase revenue.
A smarter road pricing system to replace these charges is also on the table and is expected to be rolled out over the next few years.
But it too will aim to reduce emissions and congestion rather than raise funds.
No need for cuts
I have outlined some of the options for further transfer of income and expenses.
They all have positive and negative aspects, but these options show that there is no need to cut the mayor’s transport budget.
The government and the mayor should consult on what other powers should be delegated.
Any further decentralization would take some time, perhaps two years, to be implemented.
Regardless of the above option, a two-year funding agreement must therefore be reached.
2024 will be an election that will give Londoners more say in their future.
Given this tight deadline, can we ensure that this is a two-year deal, bringing us to a point where new powers are devolved to London?
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