Devolved Taxes to Tackle London's Housing and Infrastructure Crises

Better Brexit, Better City

Devolved Taxes to Tackle London's Housing and Infrastructure Crises

Since London’s population began to recover in the 1990s, politicians have struggled to provide the housing and infrastructure that the city needs. As a result of undersupply, and the value attached to residential property as an investment, house prices have risen twenty times faster than wages over the past five years (and rents have risen ten times faster).

Congestion on roads and rail has been increasing fast, and new investments like Crossrail 2 – still awaiting Government sign off – will be essential if London is to accommodate the forecast growth.

These problems are not new, nor are they caused by Brexit, but the UK’s imminent departure from the EU should sharpen our focus. Unaffordable housing exacerbated the social divisions that boosted the Brexit vote – areas of east London had some of the strongest Leave votes in the UK – but it also threatens longterm damage to London’s global position.

If immigration and trading become more complex, will businesses and skilled workers be prepared to put up with high costs of living, and congested public transport, for all the attractions that London has to offer?

London can no longer afford to be complacent about its offer, to its residents and to visitors alike.

One fundamental issue for London’s housing market is the tax system. Domestic property taxes – council tax and stamp duty land tax – are outdated, regressive and perverse. They tax expensive property very lightly, adding to its attraction as an investment, and make buying and selling homes more expensive.

Devolution of these taxes, as recommended by the London Finance Commission earlier this year, would help London to meet its needs and tackle its problems. This should also help the rest of the UK; by supporting income and corporation tax growth in London, property tax devolution would support the UK economy as a whole.

At the very least council tax should be reformed, to bring values up to date, and allow more variation between tax rates for the cheapest and most expensive property. A more radical approach is introducing land value tax, which would tax the land that a property occupies (or, for the rent that would be paid for that land). The tax would be hard to evade, and taxing empty or underused sites would encourage more efficient land use in a city where development sites are scarce. The tax would be politically risky, but recent work on land value capture by Transport for London underlines the extent to which private landowners can benefit from unearned value increases as the result of public investment in infrastructure.


• The next Government should devolve property taxes to the Mayor of London, and enable him to experiment with reforms, from updating council tax ratios to exploring the impact of land value taxation in London