Blog Post

Local government needs two things: more money and more power

This week the Housing, Communities and Local Government Committee published their report into local government finance.

It calls on the government to provide a financial settlement that adequately supports local authorities to serve their communities and to close the multi-billion gap in local authority funding.

We’ve welcomed this call.

London’s local authorities, like other metropolitan authorities across the country have hard hit by spending cuts over the last decade. This has put pressure on high-spending services such as social care, but also on more discretionary functions within planning and development services, culture and related activities and highways and transport.

The Committee’s report highlights that this funding gap has given some councils little choice but to provide ‘bare bones’ levels of service. In the face of austerity, some local authorities have shown ingenuity in finding efficiencies and protecting statutory services and social services but that can’t continue for long, particularly as the population continues to grow and social pressures intensify.

While towns, cities and regions up and down the country struggle to meet the needs of their citizens, power and resources continue to be concentrated in Westminster and Whitehall. This means that communities are not able to shape policy to suit their particular needs. In its report, the Committee concluded that in the longer term, ‘local authorities must be given greater freedom to pursue their own solutions to ensure financial stability’. Until now the limited but positive progress towards a more devolved United Kingdom has felt stuck, but under Prime Minister Johnson that could be set to change. When he was Mayor of London, Boris Johnson repeatedly called for greater devolution to City Hall. Indeed, in a recent speech in Manchester, he claimed that Council Leaders will be given ‘greater powers’ while cities, counties and towns will become ‘more self-governing’. But what are the priority areas?

In our submission to this inquiry, we recommended that the government should start by taking a serious look at reforming property taxes, by devolving more power over them to London government:

  1. Revalue and reform outdated and regressive Council Tax – We’re pleased that the Committee is advocating for a review of Council Tax. Revaluation and reform would make marked progress towards fairer and more effective taxes on land, by bringing values up to date, and allowing more variation between tax rates for the cheapest and most expensive property. For Council Tax to be operated more effectively and fairly, the Greater London Authority and boroughs would need to play a greater role in setting London-wide bands and tax rates.
  2. Devolve Stamp Duty Land Tax to enable reform – Nearly half of all Stamp Duty paid on residential property transactions is levied in London, as most higher value property transactions take place in the city. The devolution of stamp duty powers to Wales and Scotland in recent years provides precedents that London can follow, though there is a wider question on whether SDLT is actually the right approach to local property taxation.
  3. Consider introducing more radical approaches, like a Land Value Tax – Reforms to Council Tax and Stamp Duty remain taxes on property, and the latter has been argued to be particularly dysfunctional in that it taxes transactions. There is an argument for introducing a Land Value Tax in London which would be more progressive, tax wealth rather than transactions, potentially incentivise more efficient land use in a city where development sites are scarce.

Neither Stamp Duty Land Tax nor a Land Value Tax were mentioned in the Committee’s report. It might be that these ideas could feature as part of their current inquiry into progress on devolution in England.

The devolution of more responsibilities and revenue-raising powers, alongside a new funding settlement, has the potential to put London’s local government on a more sustainable footing.

Let’s hope this new government is willing to support local authorities to address their challenges and meet the needs of their residents


Blog: Reform property taxes to benefit capital and country

Blog: London needs a fairer piece of the fiscal pie

Amy Leppänen is Senior Communications Officer at Centre for London. Follow her on Twitter.