Here's why London gets so much of Britain's transport funding

It's all the fault of these fellas. Image: HBO.

“Whoever has will be given more, and they will have an abundance,” reads a particularly depressing verse of the Book of Matthew. “Whoever does not have, even what they have will be taken from them.”

So seems, at least, to be the case in transport policy. London, which by most standards has a pretty extensive public transport system, has been very successful in persuading the government it needs a bigger one. Other cities, which don't, often haven't. Is this just because the people who make the spending decisions have to take the tube?

Well, yes, that probably is a factor, if we're honest. But there's something else going on too. I suspect there might be maths at work here, too.

To explain, let's fire up our copy of Microsoft Excel and start modelling this baby. Imagine a country with three significant cities. Because I am a geek, we'll call them King's Landing, Winterfell and Lannisport.

To keep things simple, let's assume that, at the start of our experiment, all of them have economies worth one billion gold pieces; and, all else being equal, their economies grow by 1 per cent a year. So, ten years down the line, you get this:

Equality reigns. It’s all very predictable.

But in year 10, Ken Targaryen, the mayor of King’s Landing, somehow manages to find the money to build a metro line. (Doesn't matter how, he just does.) Public transport investment makes a city more prosperous – people can get to a wider range of jobs, that sort of thing – and also attracts more people to move to the city. So let's say that it boosts the city’s total growth rate by, say, 0.5 per cent.

Thanks to its wise investment strategy/stroke of good luck, King's Landing is now growing faster than the other cities. So, in year 20, the economic map looks like this:

King's Landing is now richer than the other cities – not by much, but it is.

So. The Westerosi national government (which is based in King's Landing, but that's just a coincidence) is now deciding where to make its next public transport investment. This, too, will improve the potential growth rate of any city by 0.5 per cent.

Now the fair thing to do would obviously be to send it to one of the provincial cities – let's say Winterfell – so that it has half a chance to catch up with King's Landing. If it does that, then two of the three cities would be growing at 1.5 per cent a year, and the third by just 1 per cent. A decade later the chart would look like this:

But the Westerosi Treasury is charged with making sure it gets maximum bang for its buck with every investment it makes. So, it decides to check what would happen if it instead invested the money in adding a line to the existing King's Landing transport network.

If it did that, the King's Landing economy would be growing at 2 per cent a year; the other two would be stuck stubbornly on just 1 per cent. Here's where we are ten years later:

Well, would you look at that? Turns out that building another line in King's Landing is better for the national growth rate than building an entirely new system in Winterfell. Only by 6m gold pieces – that barely buys you anything, these days – but it counts, nonetheless.

And so the Treasury, being the committed guardians of the public finances it is, goes with option B.

You're getting the point now, I'm sure, but let's roll this forward 50 years to hammer things home. Every ten years, the Westerosi Treasury announces that one lucky city will be getting a new transport line. Every ten years, it runs the numbers and finds it'll get the best result from investing in King's Landing yet again. Here's year 80:

King's Landing is now a booming metropolis with seven metro lines and an economy worth 5,808 million gold pieces. Its GDP grows by 4.5 per cent every year.

The struggling cities of Winterfell and Lannisport, though, are still sluggishly trundling along at growth of just 1 per cent, and their economies are worth barely a third of that of the capital. King's Landing's new mayor, Boris Baratheon, is starting to ask irritable questions about whether it's fair that his hard-working citizens should be expected to support lazy provincials through their taxes.

In year 80, Winterfell asks the Treasury for money for public transport once again, but the numbers just don't stack up. If they build line one of the Winterfell Metro, it'll add 352m gold pieces to the city's GDP over the next ten years. But if they build the much needed King's Landing Crossrail, it'll add 5.4bn gold pieces to the capital's GDP. The latter will cost a bit more – quite a lot more, actually – but even so, with benefits like that, it's a no brainer, really, isn't it?

One last graph to sum the situation up. Here's the GDP of King's Landing, with its ever growing public transport network, plotted against a provincial system without one.

Yep.

Now this is, very obviously, a massive over simplification (it's a model, that's what they're for). For one thing, we’ve conflated population growth and productivity. For another, not all transport investments will have the same effect on GDP growth: perhaps the boost a city gets from moving to zero to one metro lines would be bigger than the boost it gets when it goes from seven to eight. And it’s far from clear that you can keep adding half a point to growth rates just by building new metro lines.


But the point, nonetheless, is clear. If transport investment is assumed to add to a city's potential growth rate; and if the people deciding where to make transport investments are focused on getting the maximum impact from that investment; then it's always going to seem more sensible to invest in the place that's bigger and faster growing. It's simply a property of the maths: it's better to increase the growth rate of the big thing than the small thing.

This is, to my mind, the single strongest argument for some kind of devolution. The national Treasury may never feel it’s a good investment to build a metro line in a struggling city; that city's residents and government almost certainly would.

Otherwise you'll get to the end of the century and find that Winterfell and Lannisport are still stuck in the economic doldrums, while the economy of King's Landing is so over heated that Bravosi oligarchs have started buying up patches of the place and nobody can afford to buy a house. And who wants that?

 
 
 
 

What do new business rates pilots tell us about government’s appetite for devolution?

Sheffield Town Hall, 1897. Image: Hulton Archive/Getty.

There have been big question marks about any future devolution of business rates ever since the last general election stopped the legislation in its tracks.

Not only did it not make its way to the statute book before the pre-election cut off, it was nowhere to be seen in the Queen’s Speech, suggesting the Government had gone cold on the idea. (This scenario was complicated further recently by the introduction of a private members’ bill on business rates by Conservative MP Peter Bone, details of which remain scarce.)

However, regardless of the situation with legislation, the government’s announcement in recent days of a pilot phase of reforms suggests that business rates devolution will go ahead after all. DCLG has invited local authorities to take part in a pilot scheme which will allow volunteer authorities to retain 100 per cent of the business rates growth they generate locally. (It also notes that a further three pilots are currently in operation as they were set up under the last government.)

There are two interesting things in this announcement that give some insight on how the government would like to push the reform forward.

The first is that only authorities that come forward with their neighbours with a proposal to pool all business rates raised into one pot across a wider geography will be considered. This suggests that pooling is likely to be strongly encouraged under the new system, even more considering that the initial position was to give power to the Secretary of State to form pools unilaterally.

The second is that pooled authorities are given free rein to propose their own local arrangements. This includes determining, where applicable, a tier split (i.e. rates distribution between districts and counties), a plan for distributing additional growth across the pool, and how this will be managed between authorities.

It’s the second which is most interesting. Although current pools already have the ability to decide for some of their arrangements, it’s fair to say that the Theresa May-led government has been much less bullish on devolution than George Osborne in particular was, with policies having a much greater ‘top down’ feel to them (for example, the Industrial Strategy) rather than a move towards giving places the tools they need to support economic growth in their areas. So the decision to allow local authorities to come up with proposed arrangements feels like a change in approach from the centre.


Of course, the point of a pilot is to test different arrangements, and the outcomes of this experiment will be used to shape any future reform of the business rates system. Given the complexity of the system and the multitude of options for reform, this seems like a sensible approach to take. But it remains to be seen whether the complex reform of a national system can be led from the bottom up. In effect, making sure this local governance is driven by common growth objectives, rather than individual authorities’ interests, will be essential.

Nonetheless, the government’s reaffirmation of its commitment to business rates to devolution and its willingness to test new approaches is welcome. Given that the UK is one of the most centralised countries in the western world, moves to allow local authorities to keep at least some of the tax revenue that is generated in their area is a step forward in giving places more autonomy over how they spend their money. That interest in changing this appears to have been whetted once more is encouraging.

There are, however, a number of other issues with the current business rates system which need to be ironed out. Centre for Cities is currently working on a briefing of the business rates system, building on our previous work in this area, and we’ll be making suggestions as to how the system can be improved.

Hugo Bessis is a researcher for the Centre for Cities, on whose blog this article originally appeared.

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