Many of the most productive jobs are in our major cities, so the 'north – south' question is framed too crudely. The debate should be about how we make all of our major cities as productive as they can be.
That requires our cities, and economic infrastructure investment, to focus on ticking a number of boxes:
- Access to the largest possible labour markets - widespread geographic access to skilled people.
- Better access to each other – giving businesses the largest possible product markets.
- To be attractive places to live – so boosting local housing supply and improving local air quality.
- Effective city-wide coordination of policy and strategic planning (e.g. land use; transport investment).
To support such an agenda, Metro Mayors in our major cities would benefit from significantly more housing powers and a path to more tax devolution. The focus of devolution should be on relatively stable, rather than cyclical, taxes (or tax powers), and on taxes that are responsive to economic growth.
In my area, transport, we need to focus on designing, and getting on with delivering, major schemes that make our cities as productive as possible - ticking as many of the boxes above as possible.
The scale of investment that will be required to make a significant impact on national productivity, and on imbalances in levels of output between cities, is unlikely to be affordable within the constraints of the NIC fiscal remit for economic infrastructure, if we carry on funding schemes as we do today. (The remit is to assume a cap in England of 1% to 1.2% of GDP p.a., which compares to around 0.95% last year.) We therefore need to think differently about how we fund transformational investments in economic infrastructure. Investment-led growth has to generate more tax receipts than normal growth, and we have to generate those receipts without pricing off the growth. The only way to do that is to tap into more of the extra value created by growth - i.e. the circa 60p in the pound that is currently post-tax.
The transition to electric cars will improve air quality in cities and thereby help to make them more attractive places to live. But in the absence of road pricing, supported by high quality public transport alternatives, they won't improve congestion and the loss of fuel duty revenues - currently circa £30bn p.a. including VAT - will increase government funding pressures.
Having worked on many major projects where funding is assessed through the lens of a map of project beneficiaries, the most efficient way to do this (i.e. the one with the lowest risk of pricing off growth), is to tap into windfall gains on land and property that are generated by growth-focused investment. For example very localised land value increases when they arise around stations shortly before, and for a period after, major new rail schemes open.
The current tax system doesn't do this at all well. Council tax is based on property values in 1991, and so doesn't yield more tax revenues when infrastructure investment boosts the value of existing residential property. Business rates are politically easier to increase with non-residential property values, though the most recent, delayed revaluation generated large, polarised cohorts of financial winners and losers.
As studies we have undertaken demonstrate, to capture a significant share of land value uplifts that accrue from taxpayer investment in major transport schemes with an urban focus, existing property (including residential property) needs to be a major part of the value capture approach. That doesn't mean 'taxing granny in her large house'. People can be afforded choices if, for example, new charges start only after the next sale. But it does require the political bravery (or the financial necessity) to start the conversation with the electorate.
