Whitehall, City Hall, Localism and The Renaissance of Bogotà

In December 2011 I went to a talk by Professor Alan Gilbert of the UCL Geography Department, about the struggle for good governance in Colombia’s capital city, and posted about it on my local Forum, where the subsequent discussion can still be read.  It had a big impact on my thinking about localism, and I’ve referred back to it many times.  And again this morning, on reading this post by Paul Cheshire and Christian Hilber

Business Rates: Hoorah! But Watch Out for Housing!

about which I’ll probably blog before long.  But here, for future reference, is what I wrote in 2011, lightly edited.

The story – although this was a proper academic talking, so giving an assessment rather than a comforting, easy to digest narrative – was of a developing world city which in 1992 was pretty awful, with stratospheric murder rates, getting to the point now where large numbers of its citizens feel proud to live there, and having a credit rating rather better than much of Western Europe.

Four points stood out for me, because they relate to various posts I have made on this Forum recently.

1. A single, powerful city wide mayor

Bogotà is much the same size as London, but there are no lower level political structures than the city government such as we have with our London Boroughs – and nobody much wants them other than political parties and their potential clients. As in London, most people aren’t that interested in politics, they just want good services. Compare to this post of mine on the ‘Campaigning for Ken’ thread.

2. Regular, independent assessments of the quality of public services

There is an independent private sector organisation which does regular credible surveys of satisfaction with different public services, and their reports are major stories in the local media. Council officers care very much about who well they are seen to be doing. Compare to this other post of mine on the ‘Campaigning for Ken’ thread.

3. Fiscal discipline

In 2011 it is Western Europe and the US which have borrowed up to the point where lenders don’t feel like lending them any more, and we are learning how this takes away our freedom to act as a society. It’s a lesson most of the developing world has learned the hard way over the last 20 years. And a good credit rating does help when it comes to raising money for new infrastructure.

4. No effective planning controls on the construction of new houses and lettings

There are some planning controls on where you can build houses, but they don’t get enforced, and in any case, they don’t apply in outer areas. So people just build their own homes, starting off looking like archetypical shanty towns, but being improved over time, with extra storeys added, perhaps for tenants just moved into the city. So the young and less well off do not get priced out of housing. See reference to US economist Ed Glaeser to OP on the Campaigning for Ken thread – although I should add Prof Gilbert doesn’t have too high an opinion of this author – or, I think, Prof Tony Travers, who I first heard mention this book at another meeting – on localism – that I went to earlier this year.

Contrast this with our situation in London, where central government is intensely suspicious of city wide government in London. Mrs Thatcher went so far as to abolish the GLC, and David Cameron reportedly sees Boris’ power base here as a long term threat to him. Meanwhile, in Whitehall the DCLG channels out money via the structures of London Boroughs, which few other than councillors, some local activists and local government policy wonks are interested in. And their solution to perceived weaknesses? Localism – hoping that somehow even smaller organisations will magic into existence to provide the sorts of effective public services people want.

And then shortly after

There’s an interesting article in this week’s Economist on local government finance – well, at least I find it interesting.

IT ALL seemed so simple 19 months ago when the new coalition announced a revolution in local-authority financing. The apron strings that tie local governments tightly to the centre were to be loosened. Councils were to gain new freedom to raise and spend money, and more responsibility for generating growth (as well as for making unpopular budget cuts). But what started as a straightforward bet on localism has become increasingly fraught, as the urgent need to spur the economy runs up against the equally urgent need to ensure that all councils have roughly enough money to look after their residents.

The particular issue here is business rates, which should now be retained by local councils, so creating an incentive for them to encourage business, develop a predictable revenue stream and so help them raise money for investment from new sources including the capital markets.

Unfortunately, although according to Tony Travers some

councils are already thoroughly pro-business and “would snap your arm off for a new source of jobs”


local authorities cannot be equally alluring to business, however hard they try. Although the rate of business taxation is set centrally (that will change if the government gets its way), the take varies hugely from place to place. Westminster, a rich London council, collected about 33 times as much as Middlesbrough in 2010-11. All will start out equal when the new provisions take effect in April 2013. But thereafter any incentive big enough to change councils’ behaviour leaves less revenue for redistribution. That would widen the gap between authorities capable of promoting growth (mainly in the south) and those where growth is slow or nonexistent.

So the grand concept of localising business rates is being hedged round with levies, tariffs, top-ups and resets.

By London standards, measured by how well it does to attract business, we here in Lewisham have a failing Council – with few excuses such as the long term decline of heavy industry provides for Middlesborough. So Whitehall is reinventing a complex system of welfare dependency to support our Council and other under-performers across London. Against this background, it is hard to see Lewisham ever developing a revenue stream to allow it to raise money for new investment from the markets.

The revenue base for an expanded London-wide government would be another story. Lewisham residents may not work here so much, but we do in other parts of London, so contributing to the business rates paid there, and so London as a whole would have an interest in supporting the sort of investment we need here. Further, economies of scale are likely to make its management easier. It’s not going to happen any time soon, but – as may be noticed – I’m becoming more and more convinced that localism has to be focused on natural political and economic localities, and in London, that means London.

Since housing is, economically, a luxury good, why not tax it more?

An exchange in comments on a recent blog by Jolyon Maugham about the difficulties of structuring a sin tax


reminded me of a posting I made in June 2014 on my local forum, but which is now only visible to registered users.  Jolyon’s blog showed the normal regressive pattern for indirect taxes of the two UK taxes most usually considered as being on sin

taking his numbers from an ONS spreadsheet.

As someone who can be quite moralistic about burning fossil fuels, and imagining that richer people might spend more on them in proportion to their income, I wondered whether the pattern would be different.  In fact it isn’t –  ‘Duty on hydrocarbon oils & Vehicle Excise Duty’ behaves by income quintile much like alcohol duties, but raising about twice as much.

So let’s drop the moralising, and ask what are luxury goods in the sense that

demand increases more than proportionally as income rises, and is a contrast to a “necessity good”, for which demand increases proportionally less than income

Source Wikipedia

That ONS spreadsheet has a detailed breakdown of income by quintiles, but nothing about expenditure, other than forms of expenditure with special taxes, such as alcohol.  It would be interesting to see such a cross-sectional study, but my local Forum posting I referred to commented on a longitudinal study for the US

written up in The Atlantic

How America Spends Money: 100 Years in the Life of the Family Budget

At the time I wrote

… this chart shows food as a necessity, and entertainment as a luxury – which is what you’d expect. Spending on healthcare as a proportion of income has increased a bit with the explosion of prosperity of the last 100 years, so counts as a luxury on this definition too – but that will be mainly just expenditure in the last few years of life, Overwhelmingly, however, it’s housing which has become the major apparently luxury expenditure item. Partly this will be because much spending on housing really is luxury, as economists understand it – if most of us have a bit more money, we probably will spend it on making our houses nicer. Even so, it feels too much to me, and I suspect reflects the unnecessary expense of housing as people have moved to cities where excessive constraints have been put on the expansion of the housing supply, so pushing up prices.

but in the context of tax policy, if there have to be indirect taxes, only those on property taxes can be significant and progressive.