South West bears higher tax burden than London
PEOPLE living in the South West spend a larger proportion of their income on taxes than those in wealthy parts of the country like London, new research has found.
A report out today from the political pressure group Onward exposes the burden of different taxes on different regions.
And it has prompted the Levelling Up Taskforce, set up to help achieve improved opportunities for so-called left behind regions of the country including the South West, to call for tax reform to become part of the process.
In the report, “Levelling up the Tax System”, the thinktank Onward breaks down the burden of different taxes by region for the first time, and explores how different regions contribute more or less in different taxes than they did ten years ago as a result of demographic and industrial changes. The findings will add weight to the Western Morning News’ Back the Great South West campaign which highlights regional inequalities and calls for greater investment in our region.
The new report reveals that London now generates £1 in every £5 of tax receipts, or £162 billion a year in total. This means that 36% of tax revenue is now generated in London and the South East, despite these regions only accounting for 27% of the population.
As a share of its regional economy, however, London contributes the least of any region: 33% of its regional GDP, versus 40% in the South West, North East and East Midlands.
This, the report’s authors say, has been driven by surging income and wealth tax receipts, which have increased by 55% in London but only 8% in the rest of the UK since 1999/00.
Corporation tax receipts have risen 25% in London since 1999/2000, but fallen in the North. In 2018/19, London and the South East, together generated 58% of stamp duty land tax, up from 48% in 1999/00. In per capita terms, London, the highest contributing region, contributed £512 in stamp duty, more than eleven times the contribution of Northern Ireland (£43 per head).
The analysis reveals that many taxes are regionally regressive, in that they are borne disproportionately by the poorest regions, including the South West. These include property taxes such as council tax, excise levies such as tobacco and alcohol duty, and VAT.
Average council tax per head in London is the lowest in England at £481, despite house values being much higher in the capital than elsewhere. By comparison average council tax in the South West is £620.
London also contributes the lowest amount of VAT as a share of posttax income and GDP. And fuel and environmental duties are skewed towards poorer regions because of public transport and industry mix in London compared to regions like the South West, where the private car is vital and there is less public transport available.
The paper argues that the Treasury should publish regional distributional analysis at every Budget and Spending Review so that policymakers can systematically examine the regional impacts of different tax changes and to ensure that the levelling up agenda is not held back by the tax system.