Boosting big city economies could generate more than £9 billion in extra tax each year

The report, ‘Mapping Britain’s public finances’, published today, shows for the first time where taxes are raised and public money is spent in local authorities across the country. While most tax and spending takes place at a local level, until now there has been very little understanding of where this occurs in different cities and regions (1), and how this affects the UK’s economy and finances.

Most strikingly, the report reveals the big implications for the national exchequer of the economic under-performance of some of Britain’s biggest city-regions.

Manchester, Leeds and Birmingham city regions are all performing below the national average in terms of how much tax is generated in relation to their working populations. If these three cities were performing at the national average, an extra £9.4 billion in taxes would be raised each year – more than three quarters of the Government’s proposed welfare cuts.

The report also highlights a number of other important findings that should inform national economic and financial policies in future:

• Cities generate nearly two thirds of all of Britain’s ‘economy’ taxes (2) – such as income tax, land and property taxes, and VAT
• Core urban authorities generate more taxes than their neighbouring local authorities – for example, Birmingham local authority accounted for 43 per cent of total taxes generated in the proposed West Midlands combined authority
• A quarter of all British economy taxes in absolute terms were generated in Greater London, highlighting the importance of the capital to the national economy
• Smaller cities such as Milton Keynes, Oxford and Cambridge are all performing above the national average in terms of tax generated per worker, underlining the need to continue supporting their growth in the years ahead
• Urban authorities accounted for 55 per cent of all public expenditure. Generally, spending varies less across local authorities than taxes because it is mostly determined by population, resulting in a more even spread of spending in different areas.
• Local authorities lack control over the taxes that are generated in their area – on average, for every £1 generated locally in taxes, local authorities keep only 9p, with the rest going to the Exchequer.

Alexandra Jones, Chief Executive of the Centre for Cities, said:

“This report shows the true extent of the challenges and opportunities presented in initiatives like the ‘Northern Powerhouse’, and the broader drive to boost growth outside of London and the south east of England.

“In a climate of continued austerity, the UK’s cities have a crucial role to play in tackling the deficit and boosting the national economy, but this report shows that too many are failing to reach their economic potential.

“The research also gives an insight into what needs to change if we want cities to thrive economically. One of the biggest problems is that cities don’t have the powers, resources or flexibility they need to prosper. The Government has taken an important step towards addressing these issues by introducing the Cities and Local Government Devolution Bill, but more can be done to give cities the tools and flexibility they need to succeed.

“Most importantly, cities need greater control over taxes, which would create more incentives for them to grow their economies. Not only would this help underperforming cities to improve, it would also help cities with strong economies such as Milton Keynes and Cambridge to continue to grow.”

NOTES TO EDITORS

1. ‘Economy taxes’ are dependent on the growth of the economy, such as income tax, land and property taxes, and VAT. They account for 87 per cent of all taxes raised in Britain
2. The Cities and Local Government Devolution Act 2015 sets out plans to devolve more powers to cities and areas, and to introduce directly elected mayors

For more information or to set up an interview, please contact Brian Semple, Press Manager for the Centre for Cities, on 020 7803 4316 / 0795 439 638 or b.semple@centreforcities.org

Centre for Cities is a research and policy institute, dedicated to improving the economic success of UK cities. We are a charity that works with cities, business and Whitehall to develop and implement policy that supports the performance of urban economies. We do this through impartial research and knowledge exchange. For more information, please visit centreforcities.org

Methodology overview

Data on tax for this report has come from a range of different sources. All tax has been assigned to where it is produced. This is particularly important for income tax, which is assigned to the local authority that a person works in, not where they live. Where there is no local authority data is available, regional or national figures have been assigned to local authorities according to their share of GVA or average wages.

Spend data has come from regional Public Expenditure Statistical Analyses (PESA). Data has been assigned to local authorities according to either share of regional population, share of regional spend on pensions or share of regional spend on specific benefits.

A fuller explanation of methodology is given in the report’s appendix.