UK should introduce London-specific taxes to fund development: think tank
Influential think tank Labour Together has proposed overhauling the country’s tax system to better facilitate the development of major cities, such as London.
The group argues that it is not feasible for the government to choose between investing in the South East or the rest of the country.
“If we just invest in the South East, we will fail to improve lives in the rest of the country. Labour will have failed to rebalance Britain and left the door open to populism. If we fail to invest in the South East, we sacrifice one of the most powerful wealth-generating engines on the planet.
“So we need to help richer areas pay for their own stuff. But how we do it will vary by project. For projects like the Bakerloo line or Crossrail 2, we can empower richer areas with the tools and incentives to pay for them. Lots of existing residents will benefit from shorter journey times and better jobs, and feel little of the disruption from building them. Local politicians can make an argument that we need to build them and win.”
But for other projects like new towns, it will require the government to directly step in and fund development, the group said.
“While the politics of these examples will differ, the core argument that Labour is making to the country is the same: to avoid choosing between investment in richer and poorer areas, we need to make sure richer areas have the tools to fund more of their own stuff.”
Some of the specific policy changes recommended by Labour Together include:
- Give major cities the ability to levy small payroll taxes like those in Paris.
- A new proportional tax that mayors can impose on the excess of a house’s value above a certain threshold.
- More flexibility to raise council tax provided it is hypothecated for infrastructure investment.
- Adopt the EU practice of excluding development corporations from fiscal rules when they are funded by market sources such as the sale of land. This would bring the UK in line with international best practice, so its activities do not eat up fiscal headroom.
- Make development corporations fund themselves in financial markets – either directly or via the National Wealth Fund – rather than rely on funding from the central government, to reduce strain on the gilt market.
- Introduce special planning guidelines (NDMPs or SDOs) to require dense housing and development along priority transport corridors where a development corporation does not exist. Then introduce spatially-bound taxes along transport corridors to better capture value uplift where it is not practical to have a development corporation, e.g,. A precept in capital gains tax.
- Reform developer taxes. The Community Infrastructure Levy (inc the Mayoral CIL) should be more flexible, inc scope to levy it on development value rather than just floor space, and local authorities should be allowed to borrow against it.
