Does the Chancellor hate London?

Indeed, thanks to someone at the OBR clicking ‘send’ prematurely and releasing the full contents of the Chancellor’s red box before she had even stood up in the Commons, there were no real surprises in this fiscal statement.

Yet, one message should have come through loud and clear from the budget: Rachel Reeves doesn’t like London much.

This Budget clobbered the capital and lumbered Londoners with a higher fiscal burden. Because London salaries and house prices are higher than the national average, a significant - indeed, disproportionate - amount of the extra £26billion of taxes that this Budget raises will come from Londoners.

Fiscal drag – the inevitable result of freezing tax thresholds – will trap many working Londoners in higher tax bands than they might have expected and, with the freeze now due to last until 2031, they will be paying those higher taxes into the middle of the next Parliament.

The Evening Standard has estimated that 150,000 Londoners will be dragged into 40% tax band over the next two years alone, with a further 110,000 citizens of the capital dragged into the same rate over the first two years of Rachel Reeves’ extended threshold freeze. The Treasury’s new assault on salary sacrifice will also likely hit London harder than elsewhere, with many professionals in the capital often opting to pay their bonuses into their pensions each year.

The so-called ‘Mansion Tax’ will also be another measure that hits London particularly hard. According to data from JLL, around 68% of UK homes valued at £2milion or more are located in Greater London.

Worse still, whilst a £2million plus property elsewhere may genuinely look and feel like a ‘mansion’, one property expert has warned that in London this price-tag will apply to many terraced family homes.

Londoners will also be disproportionately punished for enjoying sweet drinks. The new Milkshake Tax will not just, as the name implies, apply to milkshakes but also lattes. London is not only home to 28% of the UK’s branches of Five Guys (who, I think we can all agree, make the best milkshakes on the high street) but, according to a recent study, Londoners drink on average 767 cups of coffee per annum compared to a UK annual average 528 cups of coffee.

An Evening Standard survey in 2020 found that Londoners’ preferred choice of coffee is, indeed, the latte. First she came for our mansions, then she came for our milkshakes. Clearly the Chancellor has decided that London must subsist on flat whites and americanos from 2028 onwards.

London’s tourist economy (worth £6.6billion annually in Gross Value Added) was also dealt twin blows – the new tourist tax will increase the price of hotel rooms and airbnbs, whilst a 50p-an-hour increase in the minimum wage will further squeeze already beleaguered businesses in the hospitality sector.

These measures will undoubtedly make London a more expensive place to visit (and its not as though London was a cheap destination to start with).

Defenders of the Chancellor will no doubt be eager to point to the announcement that the DLR extension to Thamesmead is finally going ahead as a symbol of the Budget delivering for London.

However, the Treasury is not stumping up any cash for this project, it is simply letting the Mayor and TfL borrow against future earnings and fare revenue to build a modest extension of London’s light rail network that should arguably have been started years ago.

Furthermore, as I have written elsewhere, the DLR extension is not the best value or most beneficial transport project awaiting the greenlight.

Another transport measure in the Budget - freezing rail fares – will benefit those who commute into London from the Home Counties for work but those who live in London are still expected to see TfL fares rise by around 4.6% in March and then rise by more than inflation every year until 2030.

Great news if you live in Basildon, but bad news if you live in Bayswater, Borough or Bethnal Green. Similarly, changes to the taxation of cab rides will also see the cost of Uber journeys rise.

Why, exactly, Rachel Reeves hates London is not clear. Maybe she took an early political defeat – coming fourth in the 2006 Bromley and Chislehurst by-election – as a personal affront. (At the time this was the worst performance by a governing party in a by-election since 1991).

Perhaps her antipathy towards London is a result of her allegedly fractious relationship with London’s mayor, Sadiq Khan. Certainly this is not the first time the Chancellor has chosen to make London suffer.

After the Spending Review earlier this year the Evening Standard, City AM and The Economist all concluded that London had been “short-changed.”

It seems likely that, for the capital’s economy to be given the room to flourish and prosper going forward, it will prove necessary for Rachel Reeves to be dislodged from the Treasury and a new, pro-London Chancellor to be appointed.

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James Ford is a political columnist for City AM and a former adviser to Boris Johnson during his time as Mayor of London.

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