London pays almost a third of UK tax, report finds

London has cemented its position as Britain’s number one taxpayer since the financial crash, leaving the government more dependent on the capital for its tax income. A study by the thinktank the Centre for Cities found that London generated almost as much tax as the next 37 largest cities combined and increased its share of “economy taxes” underpinning the Treasury’s finances to 30%, up five percentage points since 2004/5.

Other major cities have seen little or no growth in their tax income over the past decade. The report found that while London generated nearly 25% more tax for the exchequer adjusted for inflation, Manchester’s tax haul grew by only 1%, while it plunged in Birmingham, Glasgow and Leeds.

A ring of towns around London ranked as the places with the fastest rising tax bases with only Derby, the home of Rolls Royce and Toyota, and Aberdeen, which benefited from the oil boom from 2010 to 2014, in the top ten risers outside the south east. In proportional terms, the biggest loser was Northampton, down 11.7% over the 10 year period.

The report, which covers 62 cities, said: “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.”

The findings are likely to intensify debate about government plans to devolve powers and public spending to regional centres based around cities in the Midlands, the north and the west.

George Osborne has promoted a new scheme of “supermayors” covering major northern conurbations from Manchester and Leeds to Sheffield, and a cross county authority based in Exeter, as the first step in a plan to regenerate areas that have struggled to recover since the recession of 2009.

Sir Richard Leese, the Manchester city council leader, said: “This report underlines the need for devolution to help rebalance our economy. The economic imbalance and dominance of the south-east’s economy is laid bare in the Centre for Cities’ findings.

“The growth in south-east’s national economy tax take to 30% makes the case for faster devolution to Greater Manchester and bigger slice of national infrastructure investment.”

The thinktank said the research revealed the loss of economic strength in places that mainly voted to leave the EU in the recent referendum.

Alexandra Jones, chief executive of Centre for Cities, said: “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.”

Economy taxes are tied to economic growth, the report said, and include income tax and national insurance contributions, VAT, land and property taxes, corporation tax, capital gains tax, inheritance tax and stamp duty on shares.

The study, Ten Years of Tax: How Cities Contribute to the National Exchequer, found that as a whole Britain’s cities are generating more tax for the government than 10 years ago, but urban areas that rely on a larger proportion of low skilled jobs to provide employment have seen the biggest falls.

The report said a near doubling in the threshold for paying income tax to £11,000 had taken thousands of low income workers out of paying tax. With more low income workers based in cities outside the south-east, the move reduced the amount of tax from the regions going to the exchequer. Burnley suffered a 35% drop in income tax receipts, Huddersfield 37% and Wigan 40%.

The report said the impact of the 2008 financial crash continued to be felt, with more than three quarters of British cities generating less income tax now than in their pre-recession peak. Swindon and Norwich generated 20% and 21% less overall income tax respectively in 2014/15 than immediately before the recession.

Wages have also dropped on average, dragged down by falls in pay for workers in more than two thirds of UK cities, despite an increase in the overall number of people in employment.

The 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.”