Brexit is the biggest event in London’s history for a generation, perhaps since the Second World War. It presents big challenges to the capital – challenges that are different both in degree and in character from those posed for the rest of the UK. Addressing these challenges – and the opportunities that Brexit could offer – in the upcoming negotiations, and in domestic devolution, will be essential to ensuring a prosperous future for the UK.
In the short term, London needs continuing access to domestic, European and global talent, and the terms of trade that enable prosperity – a better Brexit. In the longer term, to maintain competitiveness from outside the EU, London needs new powers over taxation to meet its housing and infrastructure needs, and to better manage its property market – a better city.
Devolved skills and regionally managed migration to retain talent
The capital is much more reliant on European workers than other areas of the country, with EU citizens working at all skills levels and in all sectors. There are twice as many EU workers in London’s workforce compared to the rest of the UK, and proportions of students are similar. Losing access to talent from across the EU would drain London’s businesses and its universities, but could also impair London’s character – as an open and welcoming city.
The vote to leave the EU makes it more important than ever that we ensure Londoners have the skills they need to thrive. Unemployment rates are as low as they have ever been, but more could be done to help Londoners into work. High childcare costs mean that London has lower rates of employment for women with children, while national apprenticeship and skills programmes are not offering Londoners the skills they need for London’s growth sectors.
- The Government should commit to devolving responsibility for early years education and childcare to London and other cities, and give them greater control over apprenticeships and other skills funding.
But London needs to remain open to international talent too. This includes high-skilled professionals in medicine, law, and other highly specialised sectors, but it doesn’t end there. London also relies on the mid-skilled workers who keep the city’s bars, cafes, building sites and care homes running, and on the young people who visit to learn languages and skills and start new enterprises. London and other UK regions need to be able to take control of their own labour needs, rather than having blunt nationwide quotas imposed on them.
- The Government should introduce a regionally-managed migration system, with different regions able to define their skills needs and to agree work permit quotas with Government.
- In London’s case, one-year ‘City Maker Visas’ would allow European citizens to visit the city to look for employment or start-up opportunities, with fast-track work permits for those who are successful.
- The Government should also extend working holiday visas to the EU, allowing easy access for young people for two years, with fast-tracked work permit applications permitted at the end of that period.
- Open access to higher education across the EU should be maintained, with student numbers removed from net migration targets, and a new post-study visa should be introduced in London to enable graduates to stay on to work.
Clarity on transitional arrangements for trade
London already trades globally as well as within the EU, but its growing service sector exports are traded within EU regulatory frameworks. International banks can trade across the EU from a London base, professional services firms rely on mutual recognition of qualifications and jurisdiction, UK airlines can fly within Europe and between Europe and the USA by using EU aviation agreements, while EU regulations allow tech firms to share data over borders.
It is in the interests of both the UK and other EU countries to negotiate trade agreements that minimise the impact of regulatory barriers on trade in these service sectors, as well as reducing tariff barriers to trade in goods. The problem is urgent. If the UK leaves without a deal in March 2019, many businesses exporting services within the EU will find it very hard to do so from London.
Given the challenge of securing a comprehensive deal by that stage, transitional arrangements will be needed. These should be confirmed as quickly as possible, rather than left till the last minute. If the issue is left unresolved, the danger is that employers will seek to manage the risks associated with a potential ‘hard Brexit’ by moving operations out of London and other UK cities. We recommend that interim membership of the European Free Trade Association (EFTA) is seriously considered: this would enable continuing access to most elements of the Single Market through the European Economic Area, though this would also require interim continuation of freedom of movement.
The Government should confirm that regulatory frameworks for services will be prioritised in discussions of future trade relationships with the EU.
The Government should work with the EU to clarify transitional trade arrangements as soon as possible after the election, with EFTA membership representing one ‘ready-packaged’ option.
Devolved taxes to tackle London’s housing and infrastructure crises
Since London’s population began to recover in the 1990s, house prices and strains of infrastructure have soared. These problems are not new, nor are they caused by Brexit, but the UK’s scheduled departure from the EU should sharpen our focus. London can no longer afford to be complacent about its offer, to its residents and to visitors alike.
One fundamental issue for London’s housing market is the tax system. Domestic property taxes – council tax and stamp duty land tax – are outdated, regressive and perverse. They tax expensive property very lightly, adding to its attraction as an investment, and make buying and selling homes more expensive. Devolution of these taxes, as recommended by the London Finance Commission earlier this year, would help London to meet its needs and tackle its problems, while supporting the UK economy as a whole.
At the very least Council Tax should be reformed, to bring values up to date, and allow more variation between tax rates for the cheapest and most expensive property. A more radical approach is land value tax, which would tax the land that a property occupies (or, for the rent that would be paid for that land). The tax would be hard to evade, and by taxing empty or underused sites would encourage more efficient land use in a city where development sites are scarce. The tax would be politically risky, but recent work on land value capture by Transport for London underlines the extent to which private landowners can benefit from unearned value increases as the result of public investment in infrastructure.
The next Government should devolve property taxes to the Mayor of London, and enable him to experiment with reforms, from updating council tax ratios to exploring the impact of land value taxation in London.
Building a city alliance for a better Brexit
Many other UK cities share London’s interests, and most voted to remain in the EU. They have diverse and cosmopolitan populations, major universities, and look to knowledge-based service sectors for their growth.
The election of new metro mayors across the country gives the Mayor of London the opportunity to work with other UK cities and their elected leaders, to argue for a Brexit deal that reflects their interests, and allows them to take control of their own affairs through devolution of taxes and services.
The Mayor of London should join with the mayors and leaders of the UK’s major cities to form a Convention of City Leaders on Brexit, and the next Government should actively engage with these cities, to ensure that their needs are properly addressed in negotiations and further devolution.
Keeping London Open
London faces both short- and long-term risks from Brexit. In threatening London, these threaten the prosperity of the UK as a whole.
Falling out of the Single Market without a comprehensive trade deal or adequate transitional arrangements would be catastrophic for London businesses, as would the sudden loss of EU workers. The longer-term risk is more subtle but no less serious – the erosion of the creative edge, conviviality and variety that distinguishes London from so many other cities that offer well-equipped offices and international airports.
London’s resilience and ingenuity will help the city to mitigate these risks and seize the opportunities that will come with them. But, like other UK cities, London needs to be open, liveable and affordable to do so.