The city represents almost 30 percent of the U.K.’s tax base, but its own fiscal powers are puny.
What will happen to London after Brexit? In the wake of last month’s U.K. vote to leave the European Union, the future direction of London’s capital has been hotly debated. The situation is so tense and surreal that in the aftermath of the referendum result, over 178,000 people have signed a petition demanding that London become an independent city-state.
Londoners had after all voted clearly in favor of remaining in the E.U., and are now marooned in a country to which its international outlook and connections are apparently anathema. Still, the suggestion of an independent London is, as commentators lined up to say, mostly ludicrous, an un-democratic fantasy that involves redrawing borders so as solely to include People Like Us.
But while the idea of breaking away from the rest of the country makes little sense, there are powerful arguments for giving London more local control—arguments that London Mayor Sadiq Khan has been voicing lately. The city is, after all, the powerhouse of the British economy, yet is possessed with a shockingly low level of autonomy.
A study from the U.K.’s Centre for Cities released last week shows just how vital London is to the rest of the country. According to the report, the city now contributes almost 30 percent of the U.K.’s tax revenue, despite containing just 13.5 percent of the country’s population. The city’s dominance is staggering: the capital generates more tax revenue than Britain’s 37 other largest cities combined.
Now, this in itself doesn’t prove that London is getting a raw deal. Its tax contributions are a sign of its economic vitality, its ability to vacuum in investment where other cities struggle. The problem lies less in the idea that London is helping to prop up the rest of the country, and more in the limited say London gets in exactly how public money is spent in the city itself.
That’s because London’s local tax-raising powers are puny. In 2014, just seven percent of all tax paid by Londoners was retained by the city’s 33 boroughs and by London’s mayor. To be clear, that isn’t the only cash the capital’s authorities get to spend. This money is substantially topped up by a tax grant from the central government, but that in turn means the central government has a substantial say in how it’s spent. It’s vital to bear this in mind when discussing London city politics. The city’s mayor may be a vocal international figurehead, but compared to New York’s Bill de Blasio or Paris’s Anne Hidalgo, his powers are small.
Granting London greater tax raising powers wouldn’t necessarily increase the city’s revenues, but it could enable more effective targeting of resources for specifically local issues such as housing. As the Brookings Institution’s Bruce Katz explains, central government dominance can cause a host of problems and inefficiencies at the local level.
“When national leaders make funding decisions, they're usually making them in a macro sense for the country as a whole. In a given city you may be underfunding some things and overfunding others,” says Katz. “These funds also come with requirements and restrictions that limit their flexibility in the face of local circumstances. A pound controlled at the local level can thus be worth far more than a pound from central government.”
It’s even possible that Britain’s centralization of power has substantially contributed to the country’s Eurosceptic tradition. Despite the recent creation of regional assemblies in the U.K.’s non-English sections, British political power is still overwhelmingly concentrated in Westminster, where MPs can (as is currently happening) choose a new prime minister without submitting to a public vote. When a nation has grown accustomed to this type of centralized, monolithic power, it’s less surprising that it has tended to see the E.U. is as distant and unaccountable—it’s a perception that effectively paints the union as Westminster’s mirror image. Katz suggests that British cities that have seen more devolution of power may have turned out to be less anti-E.U. as a result.
“You look at the cities that voted to stay—including Manchester which doesn't have an elected mayor but clearly has capable political leaders and administrators—these cities have a sense that someone is in charge locally, that they're not ceding their destiny to Brussels,” says Katz.
Certainly, devolving more power to the regional level could help heal some of the wounds that Britain’s referendum has in part inflicted and in part brought to view from previous neglect. With Britain now moving toward an exit from the E.U. that London substantially voted against, Londoners are liable to feel somewhat disenfranchised from national government. For citizens of neglected austerity-hit regions away from the capital, this may well feel like karmic payback, but that doesn’t make it healthy. A new political dispensation which devolves power (not just to London but to other regions) away from a centralized power base currently gripped by dysfunction could do more than boost an economy under threat. In a state now in danger of imminent dissolution, it could even help keep the country together.