06Appendix 1: Methodology
Drawing the fiscal map of Britain
The focus of this research is to provide the first fiscal map of Britain and a snapshot of where taxes were generated in 2013-14. However, most tax data is only available at the national or regional level, without local authority level breakdowns. In order to calculate local authority level data, different economic indicators were used to apportion tax revenue to the local level. The methodology is based on HMRC rules for where and when products or services become taxable and who is liable for paying the tax and crucially follows one key principle: thinking about where taxes are generated by economic activity, as opposed to where data happens to be collected.
The indicators included publicly available data such as employment statistics from the Business Register and Employment Survey, population data from Mid-Year Population Estimates (NOMIS), earnings data from Her Majesty’s Treasury and information from local authorities and the Devolved Administrations on devolved areas such as local waste collection.
National data on taxes that are likely to be closely aligned with the general performance of the economy were apportioned using local-authority level GVA data (ONS data and Centre for Cities analysis). Taxes that relate to industry or product-specific goods and services, on the other hand – such as tobacco or alcohol duties or specific environmental taxes – were apportioned according to local authority-level data on employment in the relevant sector.
Income Tax data is available on a local authority basis, but this is based on where the Income Tax payer lives rather than works. Given almost 50 per cent of people in cities live and work in different local authorities, it was important to capture where jobs are generating tax revenue rather than where workers happen to live. For this reason, levels of average earnings by employee jobs by local authority were used to apportion income tax from employment to local level.
Taxes are also paid on imported goods, in which case the tax is liable at the point of entry into the country, or the point at which the product becomes taxable. The most appropriate method for apportioning these taxes was to use local authority level GVA data as an approximation of the economic activity across the country that generates the need or demand for the import.
The data for Northern Ireland required to apportion regional or national totals to local authority level were not available, so the analysis covers only at local authorities in England, Wales and Scotland.
Table 1: Full breakdown of methodology for apportioning taxes
| Category | Tax name | Method of apportionment | Data sources used |
|---|---|---|---|
| Labour | Income Tax | Total UK Income Tax apportioned to local level using average wage and number of workers. | HMRC Receipts, ONS Annual Survey of Hours and Earnings, |
| Labour | National Insurance | Total UK NICs apportioned to local level using a scaling coefficient derived from the Income Tax calculations. | HMRC Receipts, ONS Annual Survey of Hours and Earnings, Business Register and Employment Survey |
| Capital | Capital Gains Tax | Regional Capital Gains Tax figures apportioned to local authority level using local authority share of regional GVA. | HMRC Capital Gains Tax, ONS Regional Gross Value Added, Business Register and Employment Survey |
| Consumption | VAT | National VAT figures apportioned local authority share of regional household spending data and jobs in sectors that produce, or apply to, VAT-liable goods. | HMRC VAT Tax Bulletin, ONS Family Spending, Business Register and Employment Survey, DECC Road transport energy consumption, NOMIS Mid-year Population estimates, ONS Regional Gross Value Added, Business Register and Employment Survey |
| Capital | Corporation Tax | Total UK Corporation Tax figure apportioned on a regional basis according to regional share of national gross operating surplus, and then to local level according to local authority share of regional GVA. | HMRC Receipts, ONS Gross Operating Surplus, ONS Regional Gross Value Added, Business Register and Employment Survey |
| Capital | Bank Levy | Total UK Bank Levy figure apportioned according to regional share of GVA/worker in financial and insurance activities and number of local authority financial and insurance jobs. | HMRC Receipts, Business Register and Employment Survey, GLA Economics GVA per Workforce Job Estimates, ONS Regional Gross Value Added, NOMIS Mid-year Population estimates |
| Other | Petroleum Revenue Tax | Total UK Petroleum Revenue Tax apportioned to local level using local authority share of jobs in oil and gas extraction. | ONS Government Revenues from Oil and Gas Production, Business Register and Employment Survey |
| Other | Fuel duties | Total UK Fuel duties apportioned to local level using local authority share of fuel consumption. | HMRC Hydrocarbon Oils Bulletin, DECC Road transport energy consumption |
| Capital | Inheritance Tax | Total UK Inheritance Tax apportioned to local level using local authority share of total inheritance tax payers. | HMRC Inheritance Tax data |
| Capital | Stamp Duty on shares | Total UK Stamp Duty on shares apportioned to local level using local authority share of national GVA. | HMRC Receipts, NOMIS Mid-year Population estimates, ONS Regional Gross Value Added, Business Register and Employment Survey |
| Land and property | Stamp Duty Land Tax | Local authority level data was available from HMRC. | HMRC UK Stamp Tax Statistics |
| Land and property | Annual Tax on Enveloped Dwellings | Total UK ATED figure apportioned to local level using local authority share of properties sold over Ł2 million. | HMRC Receipts, Land Registry Price Paid Data |
| Other | Tobacco duties | Total UK Tobacco Duties apportioned to local level according to local authority share of jobs in tobacco production for domestic goods and GVA for imported goods. | HMRC Tobacco Bulletin, Business Register and Employment Survey, ONS Regional Gross Value Added, NOMIS Mid-year Population estimates |
| Other | Spirits duties | Total UK Tobacco Duties apportioned to local level according to local authority share of jobs in spirits production for domestic goods and GVA for imported goods. | HMRC Alcohol Bulletin, Business Register and Employment Survey, ONS Regional Gross Value Added, NOMIS Mid-year Population estimates |
| Other | Beer and cider duties | Total UK Tobacco Duties apportioned to local level according to local authority share of jobs in beer and cider production for domestic goods and GVA for imported goods. | HMRC Alcohol Bulletin, Business Register and Employment Survey, ONS Regional Gross Value Added, NOMIS Mid-year Population estimates |
| Other | Wines duties | Total UK Tobacco Duties apportioned to local level according to local authority share of jobs in wine production for domestic goods and GVA for imported goods. | HMRC Alcohol Bulletin, Business Register and Employment Survey, ONS Regional Gross Value Added, NOMIS Mid-year Population estimates |
| Other | Betting and Gaming | Total UK Betting and Gaming taxes apportioned to local level using jobs in the betting and gaming industry, as well as population data for population driven betting and gaming activities. | HMRC Betting and Gaming Bulletin, Business Register and Employment Survey, Mid-year Population Estimates |
| Other | Air Passenger Duty | Total UK Air Passenger Duty apportioned to local level using local authority share of total passenger numbers. | HMRC Air Passenger Duty Bulletin, Civil Aviation Authority airport passenger numbers. |
| Capital | Insurance Premium Tax | Total UK Insurance Premium Tax apportioned to local level using local authority share of jobs in the relevant jobs in insurance activities liable for the tax. | HMRC Insurance Premium Tax Bulletin, Business Register and Employment Survey |
| Other | Landfill Tax | Total UK Landfill Tax apportioned to local level using local authority share of English, Welsh and Scottish total waste sent to landfill and share of relevant jobs in waste disposal activities liable for the tax. | HMRC Landfill Tax Bulletin, Defra Local Authority Collected Waste, Stats Wales, Scottish Environment Protection Agency, Business Register and Employment Survey |
| Other | Climate Change Levy | Total UK Climate Change Levy apportioned to local level using local authority share of relevant jobs in activities liable for the tax. | HMRC Climate Change Levy and Carbon Price Floor Bulletin, Business Register and Employment Survey |
| Other | Aggregates Levy | Total UK Climate Change Levy apportioned to local level using local authority share of relevant jobs in activities liable for the tax. | HMRC Aggregates Levy Bulletin, Business Register and Employment Survey, Business Register and Employment Survey |
| Capital | Swiss Capital Tax | Total UK Swiss Capital Tax apportioned to the local level using local authority share of households in the upper quartile of total household wealth nationally. | HMRC Receipts, ONS Wealth and Assets Survey |
| Other | Customs Duties | Total UK Customs Duties apportioned to the local level according to local authority share of national GVA. | HMRC Receipts, ONS Regional Gross Value Added, NOMIS Mid-year Population estimates, |
| Land and property | Council tax | Local authority level data available. | CLG Collection Rates for Council Tax and Non-Domestic Rates, Sottish Government Statistics, Stats Wales |
| Land and property | Business rates | Local authority level data available. | CLG Collection Rates for Council Tax and Non-Domestic Rates, Sottish Government Statistics, Stats Wales |
| Other | Sales, fees and charges | National level data for sales, fees and charges for Wales and Scotland apportioned to local authority by population. Local authority level data for England across all tiers was re-apportioned to the lowest level of local government using local authority share of County Council, Integrated Transport Authority, Fire and Rescue Authority, Police and Crime Commissioner and other local agencies. | ONS Local authority revenue expenditure and financing, Stats Wales, Scottish Government Statistics, Mid-year Population Estimates |
Drawing the public expenditure map of Britain
There are multiple sources of expenditure data, covering the many departments, agencies and layers of Government that deliver various public services. This research makes use of HMT’s country and regional analysis (CRA) of public expenditure by the whole of the public sector in 2012-13, based on Public Expenditure Statistical Analysis (PESA) datasets. This data is organised by category of expenditure rather than by individual department or agency, according to internationally recognised methods (UN COFOG).
For the purposes of this research and consistency with the available 2013-14 tax data, the latest CRA analysis available (2012-13) was uprated by the published expenditure increases between years 2012-13 and 2013-14 (source PESA 2014). Local authority level estimates of public sector expenditure were then calculated using different indicators that best matched the type of public expenditure, including population, age and local level data on benefit spending (DWP).
HMT’s CRA analysis is based on the principle that the allocation of spending is defined by where the individuals and enterprises that benefitted from that public spending are located as opposed to where it was spent.14 National expenditure, or non-identifiable expenditure, that is deemed to benefit the UK as a whole is not allocated in the HMT analysis. In order to give an indication of how the totality of public spend falls across the country however, our methodology allocates a proportion of spending that is inherently national to the place on a per capita basis – the assumption is that a resident in Newcastle benefits equally from national defence spending as a resident in Cardiff, for example.
There are other possible sources of data that provide detail on expenditure, by Government department, for example, or about whether funding was spent on revenue rather capital items, but the data used provides the most consistent analysis on the totality of public expenditure for the purposes of this research.