The Chamberlain News

London gets wealthier while Midlands gets poorer, think tank study shows

Attempts to erase the north-south economic divide and rebalance the economy have failed with the wealth created by London increasing and outstripping all other UK cities over the past decade, a report reveals today.

London delivered 30 per cent of the nation’s taxes in 2014-15, an increase of five per cent over the past decade. Birmingham, by contrast, saw its share of the tax take fall by two per cent during the same period.

In 2004-05 Birmingham generated 3.4 per cent of the national tax take. That figure fell to three per cent by 2014-15, a loss of £251 million for the Government. Coventry’s share of the tax take fell by eight per cent, while Telford and Wrekin suffered a nine per cent fall.

The study examined ‘economy’ taxes which are dependent on the growth of the economy, and account for 88 per cent of all taxes raised in Britain. These taxes include income tax, land and property taxes, and VAT.

Most large cities in the Midlands and the north of England experienced a similar fall in tax revenue as the impact the 2008 recession took hold.

Centre for Cities said the figures should serve as a warning to the Government about the dangers of an unbalanced economy following the Brexit referendum result, where large swathes of the Midlands and the north voted to leave the EU.

Alexandra Jones, Chief Executive of Centre for Cities said:

The UK’s growing reliance on London’s taxes underlines the importance of ensuring that the capital prospers in a post-Brexit world. 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.

In particular, national and local leaders should work to secure access to the single market, which many firms depend upon. We also need to see assurances that investment for important infrastructure projects such as HS2 and HS3 will continue, and that the city-region devolution deals currently in place go ahead as planned in the coming years.

Boosting productivity in both London and major UK city regions will be vital in helping the country as a whole to grow and prosper in the years ahead.

Over the entire ten year period, London accounted for 43 per cent of the ‘economy tax’ generated in UK cities.

The report highlights the potential risk to the UK exchequer of relying heavily on one city to generate such a large portion of national tax revenues, warning in particular that a slowdown in London’s economy would pose major challenges to both the capital and other places across the country.

The national economy’s increasing reliance on London is even more striking in terms of ‘work taxes’, principally income tax and national insurance contributions. In part due to policy changes such as the raising of the personal tax allowance, the capital generated £91 billion in ‘work taxes’ in 2014-15 – more than the next 60 cities combined.

Productivity levels have slumped across most UK cities, including Birmingham – but not London – since 2004. Only a third of UK cities are currently generating more economy taxes per worker than they were 10 years ago.

Wages have also dropped, despite increasing employment – most cities are now home to more jobs now than ten years ago, yet the average pay-packet has decreased in more than two thirds of UK cities.