London pays a third of tax which could wane in Brexit Britain, says report

The UK is heavily reliant on London for tax revenue, raising further concerns about the potential fallout from Brexit, according to a recent study.

A study by the Centre for Cities found that the capital accounts for the bulk of the UK’s tax revenue, generating £28bn, or 28.6% in 2014-15 of the national ‘economy taxes’.

This is almost as much tax as the 37 next largest cities combined and a 5% rise on its share on the economy tax a decade earlier.

Between 2004-05 and 2014-15, London accounted for 43% of the economy tax generated in UK cities.

Economy taxes account for 88% of all taxes raised in the UK and are dependent on the growth of the economy. It is put on activities the government would want to encourage and include VAT, income tax, and land and property taxes, but not excise duties on alcohol and tobacco.

While tax generated in London increased by 25% to £28m in real terms between 2004-05 and 2014-15, Manchester’s tax intake rose by 1%, Birmingham, Glasgow and Leeds all saw a 2% decrease in their intake.

When the UK voted to leave the European Union on the 24 June, the pound plummeted and London’s future as a financial hub was put in doubt. The report highlighted the country’s reliance on one city to generate tax and if a slowdown in London’s economy occurred it would pose a strain on the exchequers finances.

London generated £91bn in 2014-15 of work taxes – a division of economy taxes from income tax and national insurance – which is more than the next 60 cities combined.

The report, called 10 years of tax: How cities contributed to the national exchequer from 2004/05 to 2014/15, said the impact of the 2008 recession was still felt in 47 out 62 cities in the UK, which had generated less tax now in their peak pre-recession. Swindon made 20% and Norwich made 21% less tax in 2014-15 than before.

Apart from London, productivity has fallen since 2004. Only 22 cities are producing more economy taxes per person than they were a decade ago.

Despite cities having more jobs than 10 years ago, the report said wages had fallen as the average salary has decreased in 44 cities.

Centre for Cities chief executive, Alexandra Jones 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.”

Mayor of London Sadiq Khan said: “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.

“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. I am determined that London leads the way and maximises the opportunity for more autonomy, moving us swiftly away from the old Whitehall centralised model. Ministers, MPs and peers support this rebalancing of power across the UK and I hope that we will make quick progress.”