Centre for Cities: UK must address tax inbalance between capital and other cities

More must be done to support the economies of other cities than London, which is increasingly dominating tax income, think tank Centre for Cities has said.

In a new report evaluating a decade of tax income from UK cities, Centre for Cities said that although the overall amount of economy tax has increased from £283bn to £317bn in 2004-15, 20 out of 62 cities have experienced a decrease in tax and 40 are generating less tax for every job.

London also accounts for a greater share of the total, having gone from accounting for as much tax as the next 24 biggest cities in 2004-05 to generating as much as the next 37 in 2014-15. In contrast, tax from Manchester increased by just 1% in the same period.

Alexandra Jones, chief executive of Centre for Cities said that the results showed that the UK economy as a whole could suffer if London’s economy is affected by the vote to leave the European Union.

“The UK’s growing reliance on London’s taxes underlines the importance of ensuring that the capital prospers in a post-Brexit world,” she said. “But our research also shows that more must be done in the years ahead to strengthen the economies and tax bases of other city regions such as Greater Manchester, the West Midlands and the north east, many of which voted strongly for Leave.”

To address the problem, Centre for Cities recommended support for more and higher-quality jobs in city regions.

It said that, following the EU vote, local and national leaders should ensure that the UK remains part of the single market and that devolution deals and infrastructure projects such as HS2 go ahead.

Jones has previously warned that the referendum result poses “a serious risk that the government’s devolution agenda could come to a standstill”, and Rail Freight Group chair Lord Berkeley has also said that it could pose a risk to HS2, as reported in PSE’s sister title, Rail Technology Magazine.

In his speech to the LGA annual conference, communities and local government secretary Greg Clark promised to support devolution deals following the referendum result.

London mayor Sadiq Khan also called for the government to “move fast” on devolving powers to London following the referendum, saying “when London succeeds, the rest of the country succeeds too. And when we fail, the entire nation fails.”

Sir Richard Leese, Greater Manchester Combined Authority member for economic reform, said: "The economic imbalance and dominance of the South East’s economy is laid bare in the Centre for Cities' findings. The growth in the South East’s national economy tax take to 30% makes the case for faster devolution to Greater Manchester and bigger slice of national infrastructure investment." 

The Centre for Cities report also shows that the 2007 recession has had a permanent impact on tax income from cities, which declined from £319bn to £277bn in 2007-10. Although the level has recovered, only 15 cities are generating more tax than at their peak before the recession. The average wage has also decreased in 44 cities in the past decade.

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