Three things our data shows about cities and the public finances

Use our tax data tool to find out more about how economic activity in cities translates into tax revenues.

Two weeks ago today we launched our report exploring the performance of economy-related taxes over the decade, and the relationship between wages, employment and taxes. We’ve made all the data we collected (including data not used in the report) available on our online tax data tool, which you can use to create maps and charts of all the types of economy-related taxes raised in cities over the past decade.

Below are three findings revealed by the tax data tool that we were unable to cover in the main report.

1. In cities, Labour taxes make up a bigger share of economy-related taxes than in non-urban areas

In 2014-15 in cities, jobs-related taxes (i.e. income tax and National Insurance Contributions (NICs) made up more than 57 per cent of the total amount of economy-related taxes, whereas for non-urban areas the figure was 47 per cent:

However, there are big differences between individual cities:

In 2014-15, jobs-related taxes represented more than 64 per cent of London’s tax take but less than 53 per cent of Manchester’s and 43 per cent of Wigan’s. The city with the lowest share is Southend, where less than 40 per cent of taxes are from income tax and NICs. As we discussed in the main report, part of the explanation for this is related to wage levels. In 2014/15 London had the highest average yearly workplace earnings (£39,792), whereas Wigan (£20,984) and Southend (£21,437) had some of the lowest.

2. Individual taxes have performed differently in cities across the decade

We know from our analysis that the recession had a lasting impact on levels and patterns of overall economy taxes generated in all cities. Looking at the performance of the different categories that make up economy taxes highlights some interesting trends:

Consumption and capital taxes suffered a dip in all cities during the recession years. But the impact of the recession on land and property taxes was felt differently between cities. Between 2007-08 and 2009-10, land and property taxes increased in Cardiff, Hull, Swansea and Liverpool but decreased everywhere else, most sharply in Edinburgh and Aberdeen in proportional terms and in London, Manchester, and Birmingham in absolute terms. This may indicate that these cities are more sensitive to housing market fluctuations than other cities.

3. Revenues from VAT don’t seem to rise in line with jobs and wages

All other things being equal, we would expect a city with more jobs and higher earnings to generate higher levels of consumption tax – more people with more disposable income should mean more spending in the local economy and therefore higher levels of VAT generated. But the data shows that there is not a linear correlation between the two:

London, Aberdeen, Edinburgh, Cambridge and Oxford generate the highest levels of labour taxes per job, which, as we explore in the main report, reflects higher wage levels in those cities. But they are generating less VAT per job than we might expect. In 2014-15 London generated £3,510 per worker whereas the figure for Aberdeen was £3,020. Chatham (£4,540), Portsmouth (£4,480), Southend (£4,460) have the highest consumption tax per worker. Surprisingly, Southend and Chatham have some of the lowest labour tax per worker.

Two factors might explain this trend. The first is housing costs. Our housing data has shown that some of these cities are the least affordable in the UK: in Oxford, the average house price is 16 times the local average wage; in London and Cambridge, it is 15.4 and 15 times respectively. In comparison, the figures for Chatham (7.12), Portsmouth (8.43) and Southend (8.8) are much lower. This means that in Oxford, London and Cambridge, housing costs consume a higher share of disposable income than in some other cities, and this reduces the amount of money available for other spending. Secondly, since jobs-related taxes are calculated on a workplaces basis whereas VAT is calculated on a resident basis, commuting patterns might also explain this trend. Our research has shown that highly skilled workers often tend to live outside of cities and commute in to work, and this means they tend to spend more of their wages where they live rather than where they work.

Explore the data

This blog highlights just few of the ways the data can be investigated and some of charts that you can create with our new tax data tool. We encourage the use of this data alongside other economic indicators and explore what this means for different city economies.

Understanding how and where taxes are generated provides a lens through which to analyse how economic activity across and between cities translates into tax revenues. And this has implications for the country’s national finances; for how public services like health and education are funded and what money is available to invest in transport, infrastructure and housing.

Click here to start using our 10 Years of Tax Data Tool

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