London Councils has welcomed comments from the Communities Secretary in which he expressed support for devolving more financial powers over revenue raising to local authorities.

Speaking at the Housing, Communities and Local Government Committee on Tuesday 11 November, Steve Reed MP said he has “always been an advocate of devolution”, including “fiscal devolution”, and that ahead of the upcoming Budget he has made the case to the Treasury for devolving powers to councils.

London Councils has repeatedly called for a broader range of local revenue-raising powers. Boroughs in the capital face a worsening financial crisis, with London Councils recently warning of a £1 billion funding shortfall this year and half of boroughs potentially requiring emergency financial support by 2028 to avoid bankruptcy.

The cross-party group says the local government finance system is broken and that boroughs’ current dependence on council tax and grants from central government cannot sustain budgets and local services.

The introduction of an overnight (tourism) levy is a key priority for London Councils, with boroughs and the Greater London Authority retaining the proceeds for investment in local services to mitigate the impacts of tourism and drive growth. Estimates suggest this levy, when applied to hotels and short-term lets, could raise between £100m and £500m per year in the capital.

Cllr Claire Holland, Chair of London Councils, said:

“We welcome the Secretary of State’s support for devolving more revenue-raising powers to the local level.

“Everyone knows the local government finance system is broken. Boroughs are almost entirely reliant on council tax and central government funding streams, with very limited ability to shape our own financial destiny. This does not work well for anybody. More than a decade of structural underfunding has undermined our ability to sustain local services and make faster progress on priorities such as building affordable homes and generating economic growth.

“Boroughs need far more financial autonomy, in line with the powers and resources available to local government in other countries. An overnight accommodation levy – jointly administered by boroughs and the Mayor – would be one example of this. This could help provide boroughs with resources they need to ensure local services are equipped to manage the impacts of tourism and invest in growth.

“The upcoming Budget is an opportunity for action. Empowering councils with new financial powers is crucial for addressing the current funding crisis and for enabling us to invest locally in growth-boosting measures.”

London Councils was part of the London Finance Commission, which in 2017 concluded that the government should work together with boroughs and the GLA to develop the potential operation of a tourism levy.

Additional fiscal devolution proposals from London Councils include 100% business rates growth retention; devolution of Vehicle Excise Duty and the new Growth and Skills Levy; and assignment of a share of national taxes such as income tax and VAT. These measures would also give boroughs a strong direct incentive to drive growth in their local economies.