The late Labour Prime Minister Harold Wilson famously said at the time of the 1964 sterling crisis that “a week is a long time in politics”. How, one wonders, would Mr Wilson describe the current political climate in the UK?
In the year since the last Autumn Statement a lot has changed, to say the least. We have a new Prime Minister, new government and a decision to see the UK leave the European Union.
During this year’s Autumn Statement, the new Chancellor Philip Hammond will outline his vision for Britain’s economic future and detail how the government will look to ‘reset’ its economic policy in light of the Brexit vote.
Brexit has brought with it an air of uncertainty, and whilst initial indications suggest that London businesses are taking a pragmatic and level-headed approach to the referendum outcome, business confidence has fallen.
In its submission to the Treasury the Chamber urged the new Chancellor to focus on three key areas in order to boost business confidence.
Address business uncertainty
London’s businesses face a number of cost pressures, including the Apprenticeship Levy, the National Living Wage, the rising costs of commercial space and the understandable wage demands from employees struggling with the capital’s chronic housing crisis. In this context, and at a time of uncertainty following the EU Referendum result, many of London’s businesses, including its army of SMEs, are facing a significant additional burden through increases in the amount of business rates they will pay as a result of October’s rates revaluation.
LCCI believes that the business rates revaluation risks a profound – if unintentional – impact on London’s economy. LCCI has long warned of the crippling effect a surge in business rates would have upon our SMEs in particular. London’s high streets face a significant threat with many businesses facing the prospect of having to move to more affordable boroughs, nearby regions or even stop trading altogether. We want the government to assess the potential impact of significant new ratings on London businesses across different boroughs and across various sectors, and introduce enhanced transitional reliefs for businesses facing big increases in 2017.
As set out in our response to the government’s recent proposals to allow local government to retain 100 per cent of business rates, LCCI believes that there is a sufficient case, given the disproportionate impact of the current business rates system on London, for government to consider substantive changes to the revaluations model, including breaking the link between revaluations and the fixed total tax yield generated. London’s business rates could be ‘de-coupled’ from the national valuation system to help prevent future, punitive rises.
Focus on infrastructure
Investment in housing and transport is a priority for London, not simply as a way to manage the impact of population growth but also if London – and the wider UK economy – is to realise the potential of that growth in terms of economic output and productivity. Practically, this means moving forward strategic London transport infrastructure projects such as Crossrail 2 and additional East London river crossings.
One of the greatest infrastructure challenges the capital faces over the coming years is providing sufficient numbers of homes for working Londoners. Local authorities and housing associations are sources of housebuilding with untapped potential. They are, however, hindered by their inability to borrow sufficiently to invest in housing. Removing borrowing caps on local authority Housing Revenue Accounts would release funds for investment.
Further fiscal devolution
London faces an enormous challenge over the coming decades, as the capital’s population heads towards 10 million by 2030, up from 8.6 million today. To sustain this growth will require significant, sustained investment in the capital’s physical, digital and skills infrastructure. This investment is best secured and directed to where it is needed by decision-makers within, and responsible for, London.
To sustain growth and to ensure that the capital remains a leading global city, London should have greater freedom to invest in its own infrastructure and broader development, and more certainty over its future funding. The capital’s business environment could be transformed if the GLA and London local authorities were given a greater stake in economic growth through enhanced fiscal devolution.
The government should consider carefully and respond to the findings of the reconvened London Finance Commission and establish a ‘roadmap’ to further fiscal devolution to the capital. As the government looks to ‘reset’ its economic policy in light of the Brexit vote, there is significant opportunity to address not only the short term uncertainty maintained by the Brexit result but also the pre-existing, structural risks to the capital’s future competitiveness which cannot afford to be ignored. It is time to grasp the nettle.
Siwan Puw, LCCI Policy Manager