The UK’s biggest cities could raise an extra £9bn in revenue every year if they could boost their economic performance to match the national average, a study by the Centre for Cities has found.
In a report examining where taxes are raised across Britain, the think-tank found that although cities generate nearly two-thirds of “economy taxes” – such as income tax, property taxes and VAT – the proportion is lower than some other regions when assessed on a per-capita basis.
If the city regions of Manchester (around £17.4bn generated in economic taxes) Birmingham (£7.5bn) and Leeds (£6bn) improved to match the national average based on working populations, an extra £9.4bn would be raised.
The Mapping Britain’s public finances review found the three city regions perform below the national average and trail local enterprise partnerships such as Enterprise M3, covering Hampshire and Surrey, and the Thames Valley Berkshire LEP.
Centre for Cities chief executive Alexandra Jones noted that the potential extra revenue would be sufficient to offset more than two-thirds of the government’s proposed £12bn annual reduction in welfare spending.
“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,” Jones stated.
“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.”
She added that the findings indicate that cities, even though they have the advantage of greater population density, do not have the powers, resources or flexibility they need to prosper economically.
“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,” Jones stated.
“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.”
The report also found that urban authorities account for a higher proportion of government spending, around 55% of all public expenditure, but with less pronounced variation across local authorities than is seen in tax revenue.
Although cities have the highest levels of total public spending, Scottish and Welsh local authorities, and coastal areas across the UK, had the highest outlay per worker as a result of Barnett Formula allocations and funding related to pensioners and benefits.
