Growth Outside of London, High Speed Transport, and Tax Raising Powers

Back in May 2014 Public Finance Magazine published a piece of the progress of The City Growth Commission, chaired by Jim O’Neill. I wrote a response which they asked to publish in their printed journal – I thought I would repeat it here:

“Before anyone gets carried away (with the interview with Jim O’Neill) they need to read carefully what is actually being said. Firstly, he seems to be saying that SOME cities may be capable of increasing their tax take BUT even then this is not enough to solve the problems of insufficient growth and success outside of London and the South East. To my way of thinking it is the other things he mentions which are the important ones which will help to increase growth across the country. In my opinion most cities do not, in the short to medium terms, have the potential tax-base to raise anything like the investment required without massive transfers from the centre.

I am not convinced by his ‘lessons’ from the USA. For one thing, the USA is much bigger than the UK and distances between cities are greater which helps to mitigate tax ‘competition’ between cities; but even then there are many examples of cities reducing taxes (rather than increasing them to fund infrastructure), and the hollowing out of cities as people move out to the lower tax hinterland but still expect to use the infrastructure which they don’t want to pay towards. Secondly, there are lots of examples in the real world (in USA and Europe) of local government undertaking lots of borrowing via bonds etc and then not being able to pay the money back – so let us learn from these before we say ‘it has worked elsewhere’, because in fact it hasn’t worked.

His assumptions about making large savings in time (between London and Northern cities) from HS2 are full of ‘ifs’ which don’t to me seem to be based on reality. I think there is lots to be gained from connecting our midland and northern cities to each other but not by linking them (especially via hubs which are not actually in these cities) to London.”

So, there it is , short and sharp, and not a line-by-line commentary on the work of the commission but a few ‘from-the-hip responses’ to an interview.

An interim report has recently been published by The City Growth Commission, so I had better get round to reading it to see if the earlier interview and report match the contents.

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