The London bubble: capital pays a third of UK tax

The latest findings of Centre for Cities, a think tank focused upon understanding and improving UK city economies, suggest that London now pays almost a third of all UK taxes. The capital increased its share of “economy taxes” by five percentage points to 30% since the 2004-05 financial year, and now generates nearly as much as all the tax combined paid by the next 37 largest cities.

In contrast, the growth in tax income for other major cities over the past ten years has been negligible, with some seeing no growth at all. Whilst London generated around 25% more tax after an inflation adjustment, Manchester saw growth of only 1%. Birmingham, Glasgow and Leeds meanwhile saw their tax growth drop. Locations in the south east of the UK occupied eight out of the top ten fastest rising tax bases, with only Derby and Aberdeen sneaking in from elsewhere. Out of the 62 cities within the think tank’s report, Northampton saw the biggest drop of 11.7% in the ten year period covered.

“In the face of political and economic uncertainty and potential shocks to the economy, the growing reliance on fewer places – and London in particular – to generate more revenues is a risky situation for the exchequer to be in compared to one where more cities are making a positive contribution to the national tax pot”, says Centre for Cities in its report, entitled ‘Ten Years of Tax: How Cities Contribute to the National Exchequer’.

Following these findings, the debate around plans by the government for the devolution of powers and public spending to regional centres throughout the UK is expected to become more intense. The former chancellor, George Osborne, had been promoting a “supermayor” scheme covering extended urban areas in the north, to help regeneration in those areas that have struggled to recover from the recession since 2009. Since the departure of Osborne from the cabinet after the accession of Theresa May as Prime Minister, the future of such a scheme is currently up in the air.

“This report is further evidence of how London has become the main tax generator for the whole country and highlights the importance of more balanced growth across the entire UK as well as ensuring the capital’s continuing success”, said London mayor Sadiq Khan in response to the findings. “Further devolution, so that London and all our cities and neighbourhoods can take back control, is vital to unleash the energy and dynamism that this country needs in the light of its decision to leave the EU”.