Memorandum by the City of London Corporation
(SBR 12)
INTRODUCTION
1. The City of London Corporation serves
some 9,000 residents and a daytime working population of over
300,000 and, through the policies it pursues and the services
it provides, is committed to maintaining and enhancing the status
of the City both for residents and for the business community
as the world's leading international financial and business centre.
Apart from its responsibilities within the Square Mile (which
include all the local government services carried out elsewhere
by the London Boroughs) it also undertakes many other activities
which are not geographically confined, not least the international
promotion of the financial and business related services sector.
Promotional activity is enhanced through a substantial research
programme on issues of concern to the City as an international
financial centre, a City Brussels Office dealing specifically
with the EU, and representations in India and China. There are
close ties with central Government departments especially the
Treasury, the Foreign & Commonwealth Office and UK Trade and
Investment.
2. The Common Council, as an executive of
the City Corporation, exercises both public and private functions,
but consideration of the public functions alone demonstrates how
little comparison the City bears to London boroughs, or local
government more generally. For example, it is also the Police
Authority for the City of London Police, the Port Health Authority
for the tidal Thames and, through the Barbican Centre, is a major
contributor to the Arts. By way of example, spending on education
and social services usually represents the largest component of
a London Borough's budget but in the City of London this element
represents less than 8% of the City's "local authority"
spending. In contrast, the largest proportion of government grant
to the Common Council is for the police, a function which is not
even exercised by the boroughs or, for that matter, any other
local authority. The London Port Health Authority stretches from
Teddington to the Crouch and Medway and assessing its funding
requirements bears no relationship to standard parameters. The
Barbican Centre makes a valuable contribution to international
promotion of London on which the City depends and could not be
considered as simply a local resource.
THE CITY'S
"SPECIAL ARRANGEMENTS"
3. "Local" services in the City
of London are directed not so much at the small residential population
(though their interests are protected) but more at a huge centre
of business. The extent to which the City is exceptional in this
respect is exemplified by the fact that the application of the
Community Charge (Poll Tax) in the City through the Local Government
Finance Act 1988 would have given an unaffordable charge of over
£2,000 per person according to Department of Environment
calculations at the time. That result was avoided by making specific
statutory provision, necessary for the City (but no other area)
to give a sensible level of charge.
4. The City's "Special Arrangements"
were, however, adversely modified in 2004-05. The key features
up until 2003-04 included provision to allow excess spending over
Standard Spending Assessment (SSA) (subsequently FSS—Formula
Spending Share—and further amended from 2006-07 onwards)
and Police Grant to be shared in the ratio of 99:1 between business
ratepayers and council tax payers after an additional "allowance"
to meet this excess provided in the form of an Offset from contributions
to the national business rates pool. From 1994-2005 to 2003-04
inclusive the Offset was set annually at £6.5 million, having
previously been higher in the financial years from 1990-91 to
1993-94. In 2004-05 the ODPM varied these "special arrangements"
by setting the Offset at zero, following the major formula review
which was introduced in 2003-04. Over the past decade the system
has produced a very poor outcome for the City Corporation in terms
of RSG settlements.
5. In addition the City Corporation retains
the right to set a Business Rate at a different level to the National
Non-Domestic Rate (NNDR). In 2003/04 for the first time the City
Corporation exercised its power to vary the NNDR. Following extensive
consultation with the business community, a premium was levied
in 2003-04 for police and security purposes. [1]It
should be noted that, unlike the Metropolitan Police, the City
of London receives no extra government grant for its capital city
policing responsibilities.
RELATIONSHIP WITH
RESIDENTS AND
THE BUSINESS
COMMUNITY
6. The City Corporation is fully aware of
the needs of its residents and has sought to ensure their interests
are protected by ensuring that the influence of residential voters
is maintained in those wards where it currently predominates.
The reforms to the City's electoral franchise in 2002 maintained
the proportion of 20% of Members representing residential wards
on the Common Council. Members representing residential wards
were also guaranteed seats on certain City Corporation Committees.
The City Corporation engages with its resident community through
a number of fora, not least regular resident meetings.
7. In addition to the direct representation
of business on its governing bodies, referred to below, the City
Corporation employs a wide range of methods to engage with its
business constituency including its corporate contact programme,
essential business involvement in international promotional activity,
and regular meetings of working groups discussing public affairs
in general and particularly EU-related matters. Taken in conjunction
with the local strategic partnership, "The City Together",
intensive contact with senior business figures by the Lord Mayor
and the Chairman of the Policy and Resources Committee, and the
discussion of planning and property issues with City occupiers,
the City Corporation is confident that it is well-informed about
the opportunities and challenges facing its constituents.
8. As is well known, City businesses have
a unique and direct input into the City Corporation's decision
making process through its electoral system. The City of London
(Ward Elections) Act 2002 introduced new voting arrangements allowing
the City Corporation to become more effective and representative
of the modern business City. Under the reformed system, any incorporated
or unincorporated body now has an entitlement to vote as long
as it physically occupies premises within the City. The weighting
of voting entitlement is related to the number of people employed.
This approach, of linking voting strength to size of organisation,
is mirrored in the Business Improvement District (BID) scheme
introduced by the Local Government Act 2003.
9. It would be tempting to view the City
of London as a macro BID. Under the BID structure, businesses
vote to establish a BID and then the BID board decides how the
money raised by a supplementary levy on all businesses in the
area is to be spent on local improvements. In the City the Common
Council is analogous to the BID board and the electorate is the
representatives of the businesses (and others) within the area.
The City, however, has a direct form of engagement with the participating
businesses because the members of the Common Council are directly
elected and the reformed franchise means that all businesses have
an opportunity to participate in that process. The consequence
is that the Corporation is highly responsive to the needs of the
financial and business communities, its constituents.
10. Unlike a BID board however, the Common
Council effectively has no role (other than in the case of the
small premium currently levied on the NNDR) in setting the level
of contribution businesses should make to provide local services.
This situation is all the more remarkable given business voters
constitute over 70% of the Common Council's electorate but, at
present, only a very small proportion of its expenditure is met
directly from locally determined business rates as opposed to
the element that is redistributed through the national grant arrangements.
This is unsatisfactory in accountability terms.
THE LYONS
REVIEW
11. During the Lyons Review, the City Corporation
submitted formal written evidence to the inquiry emphasising the
City's unique position in terms of local government finance. As
a result the City of London Corporation supports the principle
of Sir Michael's recommendation, as outlined in his final report,
to allow local authorities to levy a supplementary business rate.
Sir Michael suggests the "London-wide supplementary rate
would be set through agreement between the GLA and the boroughs,
and in consultation with the business community, with a joint
plan for the use of the revenues collected from that rate".[2]
An attempt to find agreement between the GLA, 32 London Boroughs
and the City could be problematic. In London, the City Corporation
would, in accordance with the principle of subsidiarity, advocate
any new power being vested in the boroughs and the City rather
than in the Mayor or GLA to allow for sufficient local accountability.
There are arguments, however, in favour of the involvement of
the Greater London Authority in deciding how to apply at least
a proportion of the funds generated by the supplementary rate.
The City would suggest large scale infrastructure projects which
have an impact across the London economy, such as Crossrail for
example, would be obvious candidates for the application of such
funds whereas any remainder could be retained by the local authority
for use on local schemes.
12. Additional preparatory work will need
to be undertaken before more firm proposals for the levy are introduced,
not least on the mechanism for deciding the level of the supplementary
rate in the boroughs which do not have the same level of accountability
to the business community as is the case in the City. The thresholds
over which the new rate will apply will also need to be clearly
defined as will the parameters within which the supplementary
rate will operate. Wider concerns should also be taken into account
including the potential impact of an additional business tax on
international competitiveness.
13. Sir Michael's report makes clear however
that "This London-wide supplement would be in addition to
the Corporation of London's current powers, which should continue
to operate as at present".3[3]
In this regard, the City of London Corporation is in full agreement
with Sir Michael. The City's existing powers have worked well
in the relatively short period they have been used and retain
business support. This position should not be jeopardised. The
City's unique composition provides the appropriate mechanism to
ensure engagement with business on both the levying of the rate
and use of resources generated by the rate.
1 This was initially set at 0.3p (0.7%) and subsequently
increased to 0.4p (0.9%) for 2006-07 and 2007-08. Back
2
Paragraph 8.64, page 301, "Place-shaping: a shared ambition
for the future of local government", Final Report of the
Lyons Inquiry into Local Government, March 2007, The Stationary
Office, London. Back
3
ibid. Back
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