Public spending priorities in London

Public services in London provide essential services for Londoners, London’s workers and visitors. Understanding how these are financed and how spending priorities are set is a crucial background to the necessary forthcoming debate on how best to close the deficit gap. This report shows that:

• London has seen relatively fast growth in population and therefore increasing needs for public spending. While housing needs are projected to grow generally in line with the rest of the country, London faces particularly high and growing requirements for affordable housing.
• London has seen relatively fast growth in GVA and in employment, resulting in larger demands for both revenue and capital spending. This puts particular pressure on infrastructure requirements.
• The growth in GVA also means that London contributes an increasing proportion of national tax revenues which has not been reflected in increased spending.
• The need for additional investment is not reflected directly in the formulae for expenditure allocation. Public sector capital spending accounts for only 3.5 to 4% of the London economy. This proportion appears unsustainably low.

Infrastructure investment is a key determinant of future economic growth and the ability to exploit London’s status as a world city for the benefit of the UK as a whole. Without the continued ability to generate growth, the tax base will slowly degrade. If this is allowed to occur, then the needs based criteria will have a smaller and smaller amount to distribute.