Crossed wires on paying for infrastructure

In giving the green light to the next stage of planning for Crossrail 2 in the 2016 Spring budget, the Chancellor has taken the right decision for London and the UK. Transport for a WorldCity, the National Infrastructure Commission (NIC) report published a few days before the budget, powerfully made the case that Crossrail 2 is vital for sustaining economic vitality. The NIC estimates that the capital could pay for more than half of the £33 billion cost. But the detail of how London pays its share goes to the heart of our antiquated and hopelessly dysfunctional local government finance regime.

Ever since the Jubilee Line extension was built in the late 1990s, boosting land values so much that these could have paid for the project three times over, governments have wrestled with dilemma of big infrastructure: the costs fall on the public purse, but many of the benefits (and in particular property value uplifts) accrue to the people and businesses who are most directly affected.  Property owners who pick the right numbers in the infrastructure lottery get a windfall at others’ expense.

As public spending has tightened in recent years, the search for clever ways of funding big projects has become more and more intense.  Money borrowed for the Northern Line extension to Battersea will be repaid through developer contributions and ringfenced business rates, and commentators have suggested that Crossrail 1 was only spared the axe in 2010 because 60 per cent of its costs were met by Londoners and London businesses.

The Crossrail 2 package proposed by Transport for London follows the Crossrail 1 pattern by loading most costs onto London’s businesses and property developers. 18 per cent of the costs would be met from future fares and property deals; 20 per cent would come from a supplement on business rates (about a five per cent increase in the tax bill for most larger businesses); and 17 per cent would come from a Mayoral community infrastructure levy on new development. 

But householders get off very lightly.  Only 1.4 per cent of the cost of the project would come from council tax, specifically from rolling forward the Olympic precept that Ken Livingstone introduced in 2006 (memorably comparing it to the cost of a Walnut Whip for the average household every week).  The precept currently adds £20 per year to the average ‘Band D’ household, around 1.5 per cent of the annual bill.

So where’s the problem?  London’s booming businesses and rapacious developers get hit with the tax bills, lightening the load on ordinary citizens.  This may look like good news, but given the state of London’s property market, this funding package would do almost all the wrong things.  Charging an additional community infrastructure levy will threaten developers’ bottom line, which could just as easily result in delayed development, raised sale prices, or reductions in other social benefits like affordable housing, rather than in reduced profits.  And higher business rates may be reflected in higher prices or slower wage growth, or may even push businesses away from London.

Modest London-wide council tax increases, on the other hand, will do nothing to capture the increased desirability and value accruing to homeowners, particularly those nearest the new rail lines, who will get the mother of all free rides (one possible exception being Chelsea, where affluent residents are protesting against a new station).  In fact, Crossrail 2 may make matters worse for Londoners struggling to get on the housing ladder, pushing prices even higher in the districts that it opens up.

So the Crossrail funding package proposed for London could increase the costs of doing business in London, and hike the value of property, creating an unearned and largely untaxed bonanza for those living nearest stations, and pushing prices further our of reach for everyone else.

As the NIC report points out, the package proposed is constrained by the scope and structure of taxes raised locally.  TfL are working with what they’ve got. As the London Finance Commission pointed out in 2013, London’s council tax bands have not been revalued since 1993, when £320,000 defined the top tier of property values, rather than representing a bargain, £200,000 below the average house price. 

Regular (perhaps annual) revaluation would be fairer, allowing tax rates to be better tailored to the real values of homes and to capture some of the benefits that new infrastructure brings to home-owners in the shape of rising house prices.  If new infrastructure dramatically increased values, council tax would reflect this, and a proportion of the new tax revenues could be top-sliced to repay money borrowed to pay for the investment in the first place.

The obstacles to council tax revaluation have been seen as practical as well as political.  Practically, the exercise would be complex and call for careful callibration, but we shouldn’t make too much of this.  The technology we use to track property values has changed out of all recognition since 1993.  When anyone can check the value of their property against the local market with a few clicks of a mouse, a revaluation would not require a new Domesday Book.

There would be winners and losers, and political controversy, but these problems aren’t insuperable.  Transitional reliefs would be needed, as might measures to allow tax to be deferred so that cash-poor owner-occupiers were not forced to move by sudden tax hikes.  And Labour’s proposed ‘mansion tax’, a far blunter instrument than recalibrated council tax, did not do the party too much damage last year in London, the city that would have been hardest hit.

Other taxes could help to fund infrastructure too.  Stamp duty and capital gains tax do actually reflect rising property values, though they only kick in when property changes hands, and in the case of capital gains tax they do not apply to people’s main residence.  Nor are these currently available to the Mayor or the London boroughs, though the Government could at the very least extend the principle it applied to the Northern Line extension by allowing the Mayor to repay borrowing using tax revenues that would normally go directly to Whitehall.

In times of continuing austerity, booming London will have the devil of a job convincing the rest of the UK, let alone the Treasury, that it deserves massive public subsidy for infrastructure, however much other regions actually benefit from its growth.  London is booming, and should pay its fair share.  But without more comprehensive devolution and more control over its taxes, the capital will struggle to secure its future prosperity.

In the valley of the shadow of Blackstar

Listening to David Bowie's Blackstar, the weekend it was released, I pondered how unusual it was to hear an album devoid of context or explanation.  No interviews, live performances, chat show appearances, just a 40-minute album and the echo chamber of critics' assessments. It was exhilarating but slightly disorientating.

24 hours later, of course, all that had changed.  Rather than being stripped of context, the album was suddenly overwhelmed, freighted with news of its creator's death, a death that had been anticipated throughout the recording process, though surely never expected to follow so swiftly after the album's release. 

The fact of Bowie's terminal illness is not so much a black star as a black hole, threatening to draw in and annihilate everything in its orbit.  Just as Station to Station is Bowie's 'cocaine album', The White Album is the Beatles' 'break-up album', or Here My Dear is Marvin Gaye's 'divorce album', Blackstar will forever be Bowie's 'death album'.  It will be the one thing, the only thing, that everyone knows.

That's understandable but a bit of a shame.  It risks painting David Bowie as Grandpa Simpson, stalked by death at every turn (a simile that is really an excuse to show one of my favourite clips).  

 

But Blackstar is actually one of the best (the best, in my current view) of Bowie's late albums - rich and rewarding repeated listening.  There seem to be playful references to the First World War, 1984, nadsat, the Titanic, polari, and sly humour, even in Lazarus, where Bowie sounds like he is relishing the bathos as he intones, "I was looking for your...ass."

And a morbid tone is not unusual, for Bowie or other rock stars in their autumn years.  There's plenty of death in The Next Day, released in 2013: "Here I am, not quite dying" begins the defiant chorus of the apocalyptic title song, and the elegaic Where Are We Now? picks up the theme as Bowie walks the dead through the streets of Berlin.  Bob Dylan went through what sounded like a terminal phase in the 1990s. Time Out of Mind, recorded when he was 56, was stuffed full of references to mortality ('Trying to get to heaven before they close the door', 'It's not dark yet, but it's getting there', to pick two).  Since then, Dylan has moved on, and his more recent albums spend less time contemplating his own death, and more time gleefully planning his enemies' (see Paid in Blood on Tempest). And the dour tone of REM's 1992 Automatic for the People gave rise to endless rumours that Michael Stipe was terminally ill.

None of which is to belittle the sheer weight that impending mortality brings to bear on Blackstar, nor the unparalleled achievement (which sounds wrong, but I can't immediately think of a better word) of releasing something so complete so close to death.  But it's far from the whole story in an album that sounds by turns doleful, cryptic and almost indecently celebratory.

Cuts back

[First published on Municipal Journal blog, 26 November 2015]

Yesterday's Autumn Statement came at a challenging time for London. The capital's growing population is facing spiralling house prices, and putting pressure on infrastructure and services - from homelessness and social care to transport.

The Chancellor’s housing announcements took centre stage. The London Help-To-Buy scheme will raise the equity loan available for new homes from 20 to 40 per cent, reflecting the limited impact of the scheme in London to date. But the long-term impact on affordability is more questionable.  If the scheme does not stimulate extra supply it will merely inflate a house price bubble. 

The Chancellor also extended eligibility for shared ownership.  Applicants will no longer have to meet locally-set criteria of living or working in a particular area or profession, and the income cap will be raised to £90,000 in London. But as Centre for London’s recent report Fair to Middling observed, the model doesn’t work for everyone; social rent, affordable rent and other forms of low-cost housing are also an essential part of the mix.

We don’t yet know the detailed allocations for local government in London, but the cuts appear to have been a lot less severe than many feared.  The Chancellor boasted that cash expenditure by local authorities would be as high in 2019/20 as it is in 2015/16, but real terms spending will nonetheless fall by seven per cent over the four years, and will drop sharply over the next two years before recovering. 

It could have been a lot worse - many were forecasting real terms cuts of 30 per cent or more, but the continued squeeze will not be easy, especially coming on top of the five lean years that saw London boroughs' spending falling by around 28 per cent in real terms.  As Centre for London's analysis of the last round of cuts Running on Fumes showed, London boroughs have been resilient in coping with austerity to date.  Over the next four years, the quest for efficiency savings will continue, and front-line services are unlikely to escape unscathed.

But the headline figures mask a quiet revolution.  Revenue support from central government will fall from £11.5 billion to £5.4 billion over four years.  The balance will be made up by retained business rates and council tax, forecast to rise from £29 billion to £35 billion over the same period (the figures do not take account of plans for full business rate retention).  Many will welcome this devolution of fiscal responsibility, but questions of distribution and fairness will loom ever larger, as poorer boroughs, facing greater demands on services, struggle to grow their business tax base, and hesitate to impose permitted council tax rises to support social services. 

Major London capital projects receive a boost: funding for the 'Olympicopolis' cultural and educational complex in Stratford has been announced (again), and the Government will bring land at Old Oak Common under single control.  Further east, the extension of London Overground to Barking Riverside will enable higher quality development of one of London's longest-delayed sites, and investment in Ebbsfleet infrastructure should support the realisation of the new 'garden city' recommended by Centre for London.

One of the most dramatic changes is to Transport for London’s funding.  Alongside pledges of an £11 billion in capital investment, the revenue grant that makes up 6 per cent of TfL’s annual costs will be phased out, saving £700 million by 2019/20.  TfL will be expected to make up the shortfall through efficiency savings, through increasing fares (another blow to London's modest earners), or by generating revenue from the land it owns across London.  This land has long been eyed as a potential source of housing; with TfL’s budget under pressure, the incentive will be to maximise value.  Expect some fiery discussions about tenure mix and commercial value.

Bringing it all back home

[First published on CityMetric, 7 October 2010]

The pathway to local government devolution is rocky, with surprises waiting round every corner. Just when we had got used to the asymmetric "city deal" model, and to a deafening silence on fiscal devolution, the chancellor unveils another surprise – full devolution of business rates to local authorities.

This measure, recommended by the London Finance Commission in their 2013 report, is good news for London and other local authorities, a tentative first step away from the centralised funding model that came in with Council Tax. There are still details to follow, and there will doubtless be all sorts of devils lurking in them, but the starting point will be each local authority retaining all the business rates it collects, with a corresponding reduction in central government grants.

Grants will then be frozen, so any increase in business rates from local growth will be retained by the local authority; any reduction will hit budgets. This creates an incentive to promote business growth (though it would be hard to find a councillor who didn’t already want more businesses on his or her patch).

Councils will not have unfettered power to vary the level of business rates charged locally. They will be able to give discounts as an incentive to attract or retain businesses, but will only be allowed to increase the rate charged locally in limited circumstances (essentially, for infrastructure investment, in consultation with local businesses, and in places where there is an elected mayor – the approach that part-funded Crossrail).

Commentators have observed that, if London continues to grow faster than other UK cities, further measures will be needed to rebalance taxes between the regions (which risks undermining the incentives). But London also presents a microcosm of this challenge in itself, as a result of its pronounced split between central business districts and residential suburbs, many of which have significant proportions of poor people.

London has some of the biggest tax generators in the country but also some of the areas with biggest concentrations of need. If there was no equalisation in place, some London boroughs would be able to fund their services with huge surpluses to spare, while others would be among the most underfunded in the country. Research by Local Government Chronicle suggests that City of London, Westminster, Hillingdon, Camden, and Kensington and Chelsea would be the five best-funded councils in the country; Lewisham, Waltham Forest and Haringey would be among the worst-funded.

While the equalised starting point would level the playing field on day one, the mayor’s infrastructure plan suggests that growth will continue to be spread unevenly between boroughs, with central London gaining most ground. All other things being equal, therefore, outer London councils would gradually lose funding while inner London councils would gain.

Outer London councils might try to remedy this by aggressively cutting local business rates to attract more businesses. But even assuming it was successful, this "race to the bottom" would quickly create conflicts with the assumptions of the London Plan and Transport for London’s strategy, which assume a hierarchy of business districts.

The end point of this approach, making London into 33 self-sufficient local economies would not just go against decades of policy, but would fly in the face of London’s status as a world city. To paraphrase Engels, you cannot have capitalism in one borough.

Alternatively, and as suggested by the Finance Commission, London boroughs and the GLA will need to find a new way to allocate funding, so that the boroughs with most businesses share the proceeds of growth with the boroughs that house their workforce. The GLA and London boroughs have strengthened their ties in a number of ways already; perhaps fiscal devolution will push them to take their relationship a step further, and open a joint account.

Control - can London play the right devolution tune?

[Originally published on LSE Policy Blog and Democratic Audit UK]

The Government’s sporadic and asymmetric approach to devolution reminds me of a story about the pioneering Mancunian music producer Martin Hannett. When Joy Division first presented themselves at his studio in 1979, Hannett told them to start playing, and then retreated into a cupboard, shutting the door behind him. The bewildered band played on for a few minutes, before sending Ian Curtis, their singer, to knock on the cupboard door and ask Hannett what was going on.

“You just carry on playing,” Hannett replied. “I’m staying in this f*cking cupboard, till I hear something I f*cking like, then I’ll tell you.” The Mayor of London and the boroughs have been playing devolutionary tunes since the London Finance Commission was set up in 2012, but are still awaiting any signal of Government approval.

Some omens have been promising. Last November, on the eve of the London Conference, there was a major devolution announcement. New powers would be devolved – over housing, planning, skills, health and social care – to the Greater Manchester Combined Authority, headed by a directly-elected Mayor.

At the Conference the next day, discussions were animated: what did the ‘Devo Manc’ announcement mean, had London been left behind, how could the capital catch up with the vanguard of the Northern Powerhouse? On a panel that afternoon, Greg Clark MP, then Minister for State for Cities, said that London shouldn’t wait to be handed more powers on a plate, but should come forward with tangible proposals, as the Greater Manchester authorities had done and as other city-regions were doing, for our own ‘city deal’.

What has happened since then, or indeed since the London Finance Commission’s report was published in May 2013? On fiscal devolution – the power to set, vary and collect taxes – the London Finance Commission proposed devolution of the full range of property taxes (including stamp duty, capital gains tax, council tax and business rates), and the relaxation of borrowing controls.

The current priority for London government is full control of business rates, enabling local authorities to vary the regime to incentivise growth in particular areas and sectors. As Government has already legislated for local authorities to retain a share of business rate growth (50 per cent generally; less in central London and other areas seeing exceptional growth), you could argue that the principle has been conceded, though there is little sign of appetite for more comprehensive fiscal devolution – to London or other English cities – from Whitehall.

The experience of Manchester and other cities suggests that administrative devolution of other powers and budgets may be more fertile territory. The Greater London Authority and London’s 33 local authorities have been working together, through their ‘Congress of Leaders’, to develop proposals for devolution.

The emerging proposals are presented as part of a package of public service reform; that is to say, as necessary enablers for more efficient delivery of public services in London. They will be submitted to the Government’s spending review this month, in the hope that changes will be announced in the Autumn Statement. The proposals cover:

• devolution of budgets for employment support for long-term unemployed people;
• tailoring further education and skills provision to London’s needs;
• devolving budgets for business support, including for export promotion and SME growth;
• giving London government a lead responsibility for co-ordinating the criminal justice system;
• measures to improve co-ordination between health and social care, including new joint commissioning arrangements, borough-based allocation of budgets and devolution of capital budgets and assets; and
• more flexibility on housing, including on local authority borrowing powers and cross-boundary deployment of s106 payments.

The case for these measures is strong, not least given the resilience and adaptability that local authorities have demonstrated during the years of fiscal austerity. The Chancellor of the Exchequer has already indicated that he wants to devolve skills budgets to London, and to give the Mayor more economic development powers, and city devolution has a more powerful champion following Greg Clark’s promotion to Secretary of State for Communities and Local Government. But it’s hard to get a reading on the direction of government policy, not least as progress towards health devolution – the biggest prize for London in terms of potential for better joint working with social services – has been slow-paced in Manchester. The cupboard door remains closed.

And there are other factors that may slow progress for London in particular. The argument that London already has enough powers is relatively easily dealt with. As the London Finance Commission argued, devolution to London should be alongside, not at the expense of, devolution to other cities. If London can meet its own housing and skills needs, for example, it will put less pressure on other UK cities.

Politics may be a more serious obstacle, as London approaches an election year. The Government may want to see what sort of mayor London elects in May 2016, before doing an extensive deal on devolution (though this is not in any case likely to involve the Scottish-style devolution being proposed by Labour outsider Gareth Thomas).

But the biggest stumbling block for London devolution, apart from Whitehall’s innate inertia and reluctance to cede control, may be sheer complexity. The city deals announced to date have placed a premium on effective governance, with a directly elected mayor being superimposed on joint working arrangements in Manchester. London already has a directly elected mayor, of course. In fact it has five, including not only the Mayor of London, but also the mayors of Hackney, Lewisham, Newham and Tower Hamlets. In addition to these, there are 28 council leaders, and the City of London’s august structures. Scrutiny in the London Assembly, and in each borough, enriches this heady mix.

So London’s governance arrangements are significantly more complicated than the ‘first among equals’ mayoral model proposed in Manchester, and likely to be adoptedin other English city-regions, despite the new joint machinery proposed to oversee devolved services (while retaining several ‘sovereignty’ over existing services). There is also growing appetite for more powers from London’s sub-regional partnerships – a third tier of governance. South London Partnership has established a formal joint committee to lobby for and exercise more powers, and similar groupings in other parts of London are pushing for a stronger subregional dimension to devolution.

All of which may suggest that – 50 years after London’s boroughs were established and 15 years after the Mayor and Assembly were elected – London’s governance is beginning to show its age. The Greater London Authority has accrued significantly more powers than were originally envisaged, and more of these are direct (for example, on housing, land and planning) rather than strategic roles.
For their part, the boroughs strongly resisted the suggestions floated by Ken Livingstone for their merger into ‘superboroughs’. But an emerging voluntaristic subregional geography suggests that they see the need for something that sits between one metropolis and 33 sovereign subdivisions, recognising that skills, employment, housing and health are no respecters of administrative boundaries.

London’s leaders and mayors have been galvanised by the potential for devolution to develop a powerful consensus for public service reform. As they play on, hoping that Government will hear a tune it likes, perhaps more radical thinking will be needed to secure the devolved powers that the capital needs.

Different drums

Michael Hann’s ‘top ten’ in the Guardian prompted me to re-listen to The Lemonheads’ cover of ‘Different Drum’.  With the giddying potency of cheap music, it transported me back to a surprisingly distant age. 

‘Different Drum’ was written by the Monkees’ Mike Nesmith, and was originally a hit in 1967 for Linda Rondstadt’s folk-rock band, the Stone Poneys.  The Lemonheads covered it in 1990, cloaking its chords in the same grunge-pop sensibility that they brought to ‘Mrs Robinson’ a couple of years later. 

The song is pretty archetypal 1960s fare, a belittling brush-off to a lover who wants to pin the free-spirited singer down, redeemed by a woozily beautiful chord progression.  Rondstadt's version is mildly subversive in that it is sung from a woman’s perspective, but the sentiments are all of their time.

But what struck me when I first heard The Lemonheads’ version, and what still resonates today, is the fact that singer Evan Dando didn’t try to flip the genders back.  Over squally guitars, he sings:

“Don’t get me wrong, it’s not that I’m knocking,

It’s just that I’m, I’m not in the market

For a boy who wants to love only me.”

It seems crazy to think how thrilling that sounded 25 years ago.  Yes, the (extremely handsome) Dando was rebuffing another man’s advances, but he was doing it gently, with slightly patronising affection not disgust.  What would now probably be twitter-ed out of court as borderline homophobic then felt like an incredible advance.

It may well be that legendary stoner Dando just couldn’t be bothered to switch genders, but his self-penned song, ‘Big Gay Heart’ (a slightly ham-fisted hand of friendship) suggests that he was trying to make a point, as was Kurt Cobain when he excoriated Nirvana’s homophobic and sexist fans, or sang “What else can I say, everyone is gay” on their last recorded track in 1993, as were Sonic Youth when they released ‘Androgynous Mind’ in 1994. 

It all feels absurdly marginal today, but these details seemed important then, like pin-pricks of light shining through the gloom.  Homosexuality may have been legal, but it felt furtive.  Society wasn’t networked as it is today, and gay pubs and clubs were faintly forbidding shuttered-off enclaves.  Even the Pet Shop Boys were theoretically straight, until Neil Tennant came out in 1994.

Many young gay people have always been lonely, and probably still are today, despite the establishment straining every sinew to be accommodating.  But it felt particularly alienating 25 years ago to be a provincial young gay man who wanted to be at ease with his sexuality, but couldn’t cope with the cultural baggage that seemed to come with it.  Before Rob Halford exposed the demented homoeroticism of metal culture (and before I discovered the long-closed Bell in King’s Cross), the choice looked plain: be gay and learn to love disco, or simulate straightness and stay indie.

Looking back, it’s clear that these were always false choices (in terms of music if not sexuality), but they felt fundamental at the time.  That’s why my memories of those small gestures of empathy from the godheads of grunge still have such force today, and why I spent long hours perusing the pages of Melody Maker to pick up gay overtones in lyrics, gay-friendly attitudes from musicians, anything to bring my worlds together.

Selling cities by the pound

Originally posted on Centre for London blog 26 June 2015

The Cole Commission on UK Exports has published its report at a time when the Government’s target of achieving £1 trillion in exports by 2020 seems as distant as ever, with export levels stalled at around half that value, and a widening trade gap.

The Commission, originally set up by the Labour Party, recommends some sensible streamlining, including a new cabinet committee and the merger of UK Trade and Investment and UK Export Finance, and also recommend a more locally tailored ‘one stop shop’ service for small businesses wanting to expand through exporting, delivered through chambers of commerce.

But they seem to miss a trick in ignoring the potential role for the UK’s cities. Indeed, the report hardly seems aware of the gradual programme of negotiated devolution overseen by this government and the coalition, nor of the active role being played by cities like Sheffield, Manchester, Leeds and London in pushing exports promotion at a metropolitan level.

These cities have been learning from the experience of their US competitors (and potential partners). Research by the Brookings Institution, as part of a join initiative with JPMorgan, identified that the 100 largest US cities accounted for 75 per cent of exports of goods and services, and that export growth accounted for 50 per cent of their output growth following the 2008 recession.

Centre for London worked with JPMorgan and Brookings to review London’s exports strategy (our report Trading Places was published in November), and convened a meeting with the UK’s ten core cities to discuss how cities could play a more active role, using city-to-city partnerships, sharing experience with US cities with the same economic profile, and working locally to create the business environment that international trade requires.

We found huge enthusiasm for more active engagement among city governments, but also some frustration. Statistics don’t allow the detailed breakdown of data (especially on service sector exports) that would allow cities to identify priorities, set targets and monitor performance. Performance targets for UKTI don’t reflect the diverse make up of different local economies. And the task of planning for export growth is not within the remits of local authorities or local enterprise partnerships.

With continuing austerity, the UK’s cities are facing huge challenges, but are also rediscovering the civic entrepreneurialism that created many of our great city centres, and which can recreate thriving economies. Cities will never supplant the international infrastructure of embassies and trade missions, but they should become partners, not just bystanders, as we seek to regain our eminence in global trade.