Sadiq Khan may have been reelected for a historic third term as mayor, but if he’s to get London firing on all cylinders we need more fiscal devolution, says John Dickie
Londoners waking up to yet more train and tube strikes this week will hope the newly reelected mayor, Sadiq Khan, can use his new mandate to tackle the big challenges facing the city, including hugely disruptive industrial action that has blighted the capital for years.
While transport is one area where the mayor has considerable control, Khan – like the nine other metro mayors elected across the country – has limited powers and resources to deliver on other priorities. At a time of heavily constrained public finances, partnership with the private sector and the government will be critical if he is to deliver on his manifesto pledges.
The relationship between City Hall and Westminster will inevitably continue to prove challenging over the next few months as the UK heads into a general election. The polls strongly suggest, however, that we could have a Labour Government as well as Sadiq Khan as Labour mayor later in the year and this potential political alignment presents an opportunity to turn a new page by building a more constructive partnership between the two.
Breaking out of the low growth trap will be a key focus for the next government as it is the only sustainable way of funding investment in public services. This will only be possible by doing things differently, with the old, centralised model broken – perhaps beyond repair.
We need to deliver better bang for our bucks and drive regional growth through deeper devolution. Since the last mayoral elections, there has been some welcome progress with Greater Manchester, the West Midlands and the North-East securing ‘trailblazer’ devolution deals that give those regions more tools and long-term funding to drive growth.
But more needs to be done to break the iron grip of Whitehall, empower local leaders to invest where it will best deliver growth and, ultimately, enable the UK to be more productive. Critical to this is putting an end to the begging bowl culture that requires local areas to regularly submit bids for various small pots of money in competition with other regions. This process is bureaucratic, costly and leads to the bizarre situation where mandarins in Whitehall determine whether Hackney or Hartlepool gets funding for separate bids.
A good first step would be to consolidate different funding pots. London receives more than £650m from multiple tightly ringfenced central government funds. If these were brought together, the capital – and other cities – could invest the money more effectively across areas where it is most needed, from skills to transport projects.
This should then be followed up with greater fiscal devolution. The mayor, and London’s boroughs, retain only a tiny proportion of the taxes raised in the capital – around seven per cent. By contrast, the equivalent figure in New York is more than 50 per cent. Enabling local leaders to retain a greater proportion of local taxes – for example business rates – would create a powerful incentive to deliver growth, as they would be to keep the proceeds they deliver and reinvest locally. It would also increase accountability.
Greater devolution is an important part of the solution to increase UK’s flatlining productivity and unlock growth. Data from the Centre for Cities shows that the rate of growth in output per job in London has collapsed to just 0.2 per cent a year between 2010 and 2019 – far below international rivals such as New York and Paris. Getting London and other parts of the country firing on all cylinders is the only way we can sustainably fund public services and invest for the future.
Local leaders are best placed to understand what is needed to drive regional prosperity. The next government should give metro mayors the power, resources and thus accountability they need to deliver.
John Dickie is Chief Executive of BusinessLDN