Chancellor John Healey is facing growing pressure to grant London Mayor Sadiq Khan significant new tax powers to boost the capital's contribution to the UK economy. Civic experts and business groups are urging the government to devolve a proportion of income tax and business rates revenue to City Hall, arguing it should fairly reflect the tax receipts London generates.
Mr Healey has announced a series of measures ahead of his first Budget on Wednesday, October 28, aimed at easing the cost of living for struggling households, though many of the announcements were described as small scale.
Fiscal devolution package expected
The Chancellor and Andy Burnham were expected to publish a significant fiscal devolution package to reform Britain's over-centralised economic system, with regions across England set to be handed major new powers.
Civic experts, however, urged Mr Healey not to treat London as a "political football" and instead to unleash its economic potential by handing new powers to City Hall to enhance its reputation as the "greatest capital in the world".
The Chancellor may approve a Business Rate Retention Zone for London to fund a £20 million scheme for international trains to stop at Stratford International Station in the east of the city. Virgin is exploring stopping international services at Stratford.
Calls for investment and tax changes
In its submission for the Budget, the London Chamber of Commerce and Industry called for a series of actions, including restoring VAT-free shopping to make London more internationally competitive for tourists, and designating King's Cross and the Elizabeth Line tech corridor as an AI Investment Zone to allow London to cement its position as the AI and tech capital of Europe.
The chamber also called for support for airport expansion at Heathrow, Gatwick and Luton to unlock billions of pounds of private investment and hundreds of thousands of high-skilled jobs, and for a pragmatic new deal with the EU that reduces trade barriers, improves mobility for skilled workers and establishes a UK-EU Youth Mobility Scheme for 18 to 30-year-olds.
London's economic contribution
With banks in the City facing a new Treasury tax raid, possibly of £2 billion a year, the Centre for London also urged Mr Healey not to pit the capital against other regions. It stressed that London generates around 22% of UK GDP despite having 15% of the population, yet some boroughs have child poverty rates approaching 50%.
The Centre for London said Mr Burnham needs to match his description of London as the "greatest capital city in the world" with a fiscal devolution package that reflects its economic importance. It emphasised that compared with many international cities, London's leaders have remarkably little control over how money is raised and spent locally, with the Mayor retaining just 6% of taxes raised in the capital, compared with around 50% in New York.
Meanwhile, the Conservatives are calling on Mr Burnham to give mayors the power to offer tax cuts in their areas.
