London's 'seeks more power over taxes'

The introduction of a tourism tax would have "particular potential" in London

London's mayor and local councils should be given more powers to raise tax revenue and build affordable homes, according to a major report to be published next week.

The London Finance Commission recommends more control over business rates, a revaluation of council tax and the introduction of a tourism tax, as well as a relaxation of Treasury restrictions on what councils can borrow to build housing.

It also argues that London should receive the full amount raised by stamp duty in the capital, although members recognise that the Treasury is highly unlikely to back such a measure.

Leaked excerpts of the report suggest that the reforms would increase London government's accountability to residents and businesses.

The commission, set up by the mayor last year and chaired by Tony Travers from the London School of Economics, has explored how growth and investment in the capital could be enhanced to meet the challenges of a rapidly increasing population.

Billions raised

It recommends a council tax revaluation, introducing new bands to capture the high prices in London, and a simplification of current property taxes.

Under the proposals, all business rates would be devolved - currently only half the income is locally-controlled - bringing the capital an extra £3.2bn a year.

A new organisational structure would need to be found to make this work, linking the mayor and the boroughs more closely.

More borrowing is needed to invest in the capital, and Treasury-imposed limits on London councils and the Greater London Authority should be eased.

The report also says "a tourism tax would seem to have a particular potential in London because of the particular needs of leisure and tourism."

No 'city state'

The report denies the plan is to turn London into a city state, saying similar powers should be considered for other major cities, although it is recognised that none have the structure of a mayor and local boroughs which would make this easy to achieve.

There is recognition that it will be unpopular among some and seen as a bid for London to receive more investment at the expense of other regions.

But the report argues that London is absolutely central to the British economy and growth in the capital benefits the whole country.

The study finds that London has lower levels of fiscal autonomy than many other comparable international cities.

The yields from any devolved tax-retaining powers would be off-set by a corresponding reduction in the central government grant.

A radical recommendation for the longer term is that London should take control over the housing benefit budget and merge it with the housing investment budget which has already been devolved to the city.