London needs radical devolution to drive UK growth, argues policy expert

London should be given devolved powers on a par with Scotland and Wales, including control over stamp duty, property capital gains tax, business rates and council tax, according to Patrick Diamond, professor of public policy at Queen Mary University of London. In a new analysis, Diamond argues that the capital’s economic stagnation since the 2008 financial crisis, compounded by Brexit and global headwinds, means the current governance settlement is no longer fit for purpose.

The argument rests on London’s outsized contribution to the national economy. The city generates more than a fifth of UK GDP and its tax revenues fund public services across the country. Its dense cluster of legal, financial and professional services also underpins growth in other major cities including Birmingham, Leeds, Manchester, Newcastle and Bristol. Yet productivity has flatlined for over a decade, and internal inequalities, between affluent Westminster and deprived boroughs such as Newham or Barking and Dagenham, are as wide as those between London and the rest of the UK.

Governance gaps after 25 years of the GLA

More than 25 years since the Greater London Authority was created, Diamond says the perception that London devolution is “a done deal” is mistaken. The city has fewer powers than comparable global centres such as New York, Paris and Tokyo. While the recent “integrated financial settlement” pooled some budgets, too many strings remain attached to Whitehall. Diamond contends the capital needs autonomy to run its economy and reform public services, particularly given the pressures of an ageing population.

Tax powers and borough empowerment

Echoing proposals from the London Finance Commission nearly a decade ago, Diamond calls for the devolution of stamp duty, property-related capital gains tax, business rates and council tax. He also argues the capital should retain a proportion of income tax to finance major infrastructure and economic development projects, meeting capital investment needs in housing, transport and net zero rather than relying on central government largesse.

Greater devolution should not simply mean more power for the Mayor, he adds. London boroughs need budgets and levers to drive growth locally. Evidence suggests residents are more likely to accept controversial decisions on housing or transport if they see choices made locally. Most Londoners identify first with their borough, and councils should be treated as joint decision-makers with democratic mandates, not merely as a delivery arm of the GLA.

Risk of falling behind

Without a new settlement, Diamond warns London is at grave risk of falling further behind its global peers. Growth and productivity have stagnated for a decade, and the capital needs a “shot in the arm” with the freedom to spend on what matters most for the future economy. The alternative, he suggests, is continued reliance on Treasury handouts and a governance model that cannot respond to the scale of the challenges ahead.