Executive Summary

  • The recession, nature of the recovery and income tax policy decisions over the decade have resulted in a more polarised ‘fiscal map’ of Britain than 10 years ago and as a result, the national exchequer is becoming more and more reliant on certain parts of the country to generate tax revenues.
  • Cities have consistently generated the lion’s share of national taxes over the decade but this masks significant variation in patterns of taxes generated between different cities over time, reflecting in part the clear geography of economic performance between places.
  • Understanding how and where taxes are generated is important and 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.
  • This report analyses 10 years of tax data – a timespan which covers two governments and a global recession – to shed light on the relationship between economic performance and tax generation. Centre for Cities has consistently highlighted that there is a clear geography to the performance of British city economies. But how this economic activity has translated into tax revenues over time tends to be ignored in policy making and discussions about the national finances.

The report highlights five key trends:

  1. Many British cities generate less in economy taxes1 than they did 10 years ago. The total amount of economy tax generated in cities has risen from £283 billion in 2004/05 to £317 billion in 2014/15 but some cities are actually generating less than they were a decade ago: almost a third of British cities (20 out of 62) have experienced a real-terms decrease in the level of taxes generated in their area.
  2. Cities are still more ‘tax productive’ than elsewhere but most have become less so over time. Workers in cities have generated on average £2,682 more economy tax per job than non-city areas over the decade but this masks differences between cities: 40 out of 62 British cities are generating less tax per job than they were a decade ago.
  3.  Smaller cities have seen larger increases in their tax take but big cities remain crucial. London aside, tax revenues generated in small and medium sized cities have grown more than in larger cities. However, Manchester, where tax receipts grew by only 1 per cent over the decade, added only slightly less tax into the national pot over that period than the fastest growing small and medium sized cities combined.
  4. The reliance on London has increased over time. London in particular has seen its share of the urban tax take increase considerably: in 2004/05 London generated as much economy tax as the next 24 biggest cities, while in 2014/15 London generated almost as much as the next 37 cities.
  5. The ‘great recession’ had a significant and lasting effect on the levels and patterns of taxes generated in cities. The recession caused a two year dip in tax revenues generated in cities: between 2007/08 and 2008/09 revenues generated in British cities fell from £319 billion to £300 billion (6 per cent) and then by a further 8 per cent the next year to a low of £277 billion.

– Nearly all cities (56 out of 62) have seen economy taxes generated in their area increase since their lowest point in 2009/10. Only Exeter, Nottingham, Preston, Bradford, Swindon and Gloucester are generating less tax today than they were even in 2009/10.

But only 15 out of 62 cities are generating more tax than they were at their pre-recession peak. And in two-thirds of cities, the average rate of growth of the tax base in the post-recession period (2009/10 to 2014/15) is lower than it was pre-recession (2004/05 to 2007/08).

– The story is the same when looking at tax productivity. Most cities have improved levels of economy tax per job since the lowest point of the recession. Only in Bradford, Wigan, Luton and Nottingham are average levels of tax generated per job lower now than in 2009/10. But only three out of 62 cities are today more productive in terms of tax than they were before the recession, suggesting a significant long-term impact on productivity

  • The way the ‘jobs miracle’ and income tax policies have played out across cities helps to explain the changes and patterns observed. The majority of cities (43) generate less income tax today than a decade ago, and of these, the majority (33) have more jobs commanding lower individual wages, suggesting that wage levels have had a more significant impact on tax revenues than employment levels. In addition, reforms to income tax policy, such as the increase in personal allowance, have impacted on the levels of tax generated across different British cities.
  • These trends point to the need for policy to focus on supporting the creation of high quality and high paying jobs. More of these types of jobs in cities will not only boost prosperity of those individuals living and working there, but they will also produce higher tax receipts for the exchequer.

Footnotes

  • 1 Economy taxes are the sum of labour taxes including income tax and national insurance contributions, consumption taxes including VAT, land and property taxes including council tax and business rates, and capital taxes, including corporation taxes. Full details in the Appendix chapter of this reader.