Labour rift over City overhaul

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THE Labour Party is set for a fresh internal row this week when it drops plans to scrap the Corporation of the City of London, the undemocratic council dating back to medieval times which governs London's financial Square Mile.

City sources say the U-turn will come on Wednesday, when Frank Dobson, the shadow secretary for the environment and London, presents a consultation paper on the capital's future.

The policy is expected to include a new elected body for the rest of London to replace the Greater London Council abolished by the Tories 10 years ago.

This weekend, though, the City about-face has provoked a bitter backlash from Labour traditionalists, who accuse Tony Blair of cosying up too much to the financial establishment.

"The City has immense clout and is able to pull a lot of strings," said Tony Banks, the left-wing London MP for Newham North West.

"I know for a fact that this is what it has been doing with this consultation paper. But to let it sit with all its power intact is totally unacceptable."

The Corporation's archaic political structure has remained intact since 1189 and has consistently come under fire from Labour. It is the only local council to retain the business vote, which means 5,000 property- owning City residents are outgunned by partners in law and accountancy firms, who each have a vote.

Limited companies, however - even giants like BP with its headquarters in the City - are excluded from the ballot and in practice 12 of the 25 seats are "rotten wards", with fewer than 10 residents able to vote. People standing for election to the common council must also be Freemen of the City of London, usually members of the traditional livery companies.

Moreover, any elected candidate must first be deemed suitable by the inner 24-strong Court of Aldermen - a self-perpetuating club in critics' eyes - who are chosen for life by council members. In a controversy last September, the Aldermen were successfully taken to the Court of Appeal after blackballing reformist businessman Malcolm Matson.

In 1994 the Corporation did see off a challenge from traders in the Smithfield meat market who were angry at rent rises and tried to exploit election loopholes to turf out councillors.

Despite the quirks and conflicts, Labour is now set to accept the Corporation - which collects pounds 700m in rates a year - as the representative face of the City.

Michael Cassidy, chairman of the Corporation's policy committee, said: "Labour has given clear indications that they are now more interested in working with us than abolishing us. It's a two-way deal. Labour are naturally keen to get closer to the Corporation, which has become a real financial powerhouse in the City."

The Corporation says that by attracting businesses to London and funding charitable projects, it has proved itself indispensable.

It likes to see itself as a pocket of wealth, surrounded by poor boroughs, which it helps out. It gives pounds 10m a year to London charities and contributes substantially to the Treasury.

The Corporation is also sponsoring a Labour event next week, when Tony Blair will set out party policy in more detail. "This kind of relationship with Labour would have been unimaginable 10 to 15 years ago," said Michael Cassidy. "We've been much more active in promoting the City and its services, and I think Labour understands that."

The last serious attempt to reform the Corporation came in 1960, when a Royal Commission argued that the logical solution was to abolish it. "But logic has its limits," the report concluded.