London's Financial Freedom: Boris Johnson Dream May Make Capital Worse Off

London risks losing money if it gets the financial autonomy it is seeking from central government.

Under proposals put forward by the London Finance Commission, backed by the city's Mayor Boris Johnson, the capital would keep hold of more of the tax revenue it generates.

This would then be offset by a reduction in the grant it gets each year from Westminster.

Should the tax yield one year be poor, it may force London to hold out its begging cap to central government once again. Such an eventuality may also lead to spending cuts in local communities, or even Londoners facing higher tax bills.

"If the tax base in London didn't grow as fast as the UK as a whole, that would indeed by bad for London," said Tony Travers, the London School of Economics academic who led the commission, to IBTimes UK.

"But that's the point of the reform. That puts a lot of pressure on policymakers to think harder about investing, how they encourage business, and how they make the economy more productive.

"To be honest, I think it's a good idea that there's the threat of a loss of revenue, or the benefit of the growth in revenue, to keep policymakers on their toes. It's just like in the way countries are competitive, so should cities be."

Jules Pipe, chairman of the London Councils group that represents all the capital's authorities, agreed there is a risk of the capital being granted more financial autonomy by the government.

"London would have to take that risk if it's going to bid for the advantages that we would have in a devolved system," Pipe, who is also Hackney's first directly elected mayor, told IBTimes UK.

"But then, London would also suffer if the country as a whole suffered, so I don't see that as a greater risk than we experience now."

London currently gets 74% of its funding from the government. This is compared with 50% in New York. The English capital also generates more than 18% of the UK's total tax income.

Less reliance on a central government grant would mean more financial security, argued London mayor Boris Johnson.

"Our problem in London is we are engaged in endless hand to mouth negotiations with central government about penny packets of finance. That's a chronic problem," said Johnson at the report's launch.

"It means now, for instance, we have no real certainty about the financing for very important projects beyond 2015. That means our contractors have no certainty, which affects the price we can get for the deals that we do. It makes it more expensive."