London calling

Major development in the city autonomy drive this week with a report from Tony Travers and team on the London Finance Commission, calling for the Treasury to hand £12bn of tax revenue to the GLA including the full suite of property taxes. This would give London both autonomy and accountability. Only 7% of taxes paid by London residents and businesses are retained by the mayor or the boroughs – compared to 50% in New York. Boris has a nice line about London being “infantilised” compared to its international peers.

Under the LFC’s plan this devolved tax take would cover council tax, stamp duty, business rates and capital gains tax on property sales – allowing the city to prioritise the investment it needs in transport and housing, amongst other things. The net tax retained would be offset by an equivalent cut in the amount received from central government. Which avoids the accusation of London favouritism in any change.

For now. The come back will be that the rest of the country will lose out on the growth in the net proceeds London would have made to the national coffers in the future. Hence the centralizers will say that London’s existing advantage needs to be eradicated or at least much reduced before it is allowed to strike out on its own. Then there’s the small matter of how the rest of the country bailed out London’s banks – or was it Edinburgh’s?

But would a London politician even be audacious enough to try it? To pull it off Boris would need a Thomas Cromwell figure to engineer a schism from the modern papacy of Westminster.

Meanwhile this week, signs of economic recovery are a case of a little good news being a dangerous thing according to the FT. Dig below the surface of the recent 0.3% growth figure and it turns out it was almost entirely due to a build up in inventories – in other words stock hoarding by companies. Government net consumption growth was zero, trade was negative and consumer spending growth marginal.

And the employment ‘good news’ – that unemployment hasn’t soared with the slump – turns out to be illusory. A new index that focuses on underemployment rather than unemployment found that 10% of Britons are working less than they want to – a combination of the 7.9% who are unemployed and a further 2% working less than they would choose. Though the 2% is a net figure, factoring out the – apparently few – who say they want to work less. This mass of under-employed are in part-time jobs, or working for themselves and getting the occasional contract or working in bouts of temporary work between forced periods of ‘rest’. They are predominantly young and/or poor.

But hang on – the research also shows that the total number of hours being worked hasn’t changed from before the recession. So the ‘demand’ for more work is due to falling real wages.

So to sum up – the same amount is being produced by the same number of people working the same hours and earning the same nominal wages. But inflation is higher so we’re all worse off – except for businesses that are benefiting from higher prices whilst labour costs are held down, boosting profits. Stagnation.  There’s no particular reason for businesses to offload staff in such a position. They aren’t facing lower demand, just no growth in demand.

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