Northern communities need new powers to ‘take control over their own destiny’

Lord Jim O’Neill is calling for “a fairer and better balanced tax system”, that would allow councils and mayors to keep a larger share of the money they raise and spend it on local priorities.

The economist, who helped create the original Northern Powerhouse vision with former Chancellor George Osborne, said it would help close the long-standing gaps in productivity and wages between the North and South, and grow the UK economy.

Chancellor Jeremy Hunt announced new devolution deals for Greater Manchester and the West Midlands, which promise single multi-year settlements and allow them to retain 100 per cent of business rates, in his Spring Budget last week.

But a new report published by Northern Powerhouse Partnership (NPP), which stated further reform is needed as the current system for funding local government is “broken and not fit for purpose”, because Whitlehall is divvying out money through “bidding rounds and seasonal initiatives”.

It stated the UK remains one of the most centralised countries in the developed world, with Westminster setting all but a tiny fraction of taxes.

NPP, which Lord O’Neill is vice chair of, said Northern leaders should be allowed to “retain the successes of growth as captured by taxes and levies”, and then “re-invest them in future projects and interventions”.

In the report, the think tank said the centralised business rates system must be reformed or replaced with a locally-set land value tax, with fair transfers from the areas with the highest values to those with the least.

NPP stated local leaders should also collect stamp duty revenue, and be given 1p of every employer’s National Insurance contributions, so they can spend that money on infrastructure projects.

It called for a new tourism tax on hotel stays, that could raise money to support local culture projects and the environment, claiming it could generate more than £5.5m a year in the Lake District alone if £1 was charged for each booking.

In the report, the Government is also urged to introduce three new council tax ‘super bands’ for the most valuable properties, following a revaluation of all homes, and share that revenue across the country.

Lord O’Neill, a former Commercial Secretary to the Treasury, said: “It’s time for a new era in English devolution where we give local areas greater control over their own destiny.

“Proper fiscal autonomy would bring power and accountability closer to communities, while protecting local economies from shifting sands in Westminster and allowing us to focus on the fundamental barriers to productivity.

“A fairer and better balanced tax system between central and local government is the bedrock for a functional, productive, prosperous economy.

“While the changes we’re proposing will take many years to be felt in economic data, that should not put us off.

"These are deep-seated problems that have developed over decades and as such it will take decades to reverse them.”

NPP has highlighted OECD statistics from 2021, taxation set at a local or regional level amounted to 16.2 per cent of GDP in Canada, 13.3 per cent in Germany and 1.7 per cent of GDP in the UK.

A Government spokeswoman said: “Our ambition is for every part of England that wants one, to have a devolution deal, and we share the Northern Powerhouse Partnership’s ambitions for greater power and accountability to be held at the local level.”