It’s becoming increasingly important to understand how patterns of economic performance in combined authorities translate into tax revenues.
The devolution of business rates already raises questions about how to deal with combined authorities within the national system, and by extension how to deal with revenues generated in individual authorities within combined authorities. Now, with new metro mayors coming in 2017, and appetite for fiscal devolution growing, it will be important to know more about the patterns and dynamics of city region revenues to develop proposals that work for different places.
So, let’s dig a little deeper, and look at what has happened at local authority level within three combined authorities that are set to receive new powers through their devolution deals: Greater Manchester, West Yorkshire and the North East.
Doing so reveals two important conclusions.
1) The data highlights the importance of the urban cores of these combined authorities in generating tax revenues.
In Greater Manchester and West Yorkshire, the lion’s share of economy-led taxes were generated in Manchester (30 per cent of the combined authority total) and Leeds (44 per cent of the total) local authorities last year. In the North East, Durham and Newcastle local authorities play a fairly equal role in terms of generating taxes within the combined authority (both contribute 22 per cent of the total amount raised in the area).
Tax raised in Greater Manchester
Tax raised in West Yorkshire
Tax raised in North East
2) Over the last decade, the importance of the urban core has grown in Greater Manchester – but less so the North East and West Yorkshire.
In Greater Manchester, the share of revenues generated in Manchester local authority has grown: it’s gone from generating 27 to 30 per cent of all taxes.
Interestingly in the North East and West Yorkshire, the relative contribution of different authorities has not changed as much over time. In the North East, Newcastle and Durham local authorities generated just over a fifth of the total economy taxes generated in the combined authority area both ten years ago and today. In West Yorkshire, Leeds generated 43 per cent of all economy taxes in 2004-05; it generates 44 per cent today.
Part of the explanation for the change in relative levels of taxes generated in the different combined authorities lies in the performance of the local authority tax base in cash terms. In Greater Manchester, Manchester local authority, alongside Salford and Bury, was one of only three to generate more economy taxes today than a decade ago. Both the positive performance of Manchester (and Salford and Bury) and the relative decline of others help explain the more prominent role of Manchester in GM’s tax base.
Meanwhile, in the North East all local authorities have grown in real terms over the decade. In West Yorkshire, all local authorities are now generating less than they were ten years ago – something which has led to an unchanged relative position between individual authorities over time.
Tax raised in Greater Manchester over the last decade
Tax raised in West Yorkshire over the last decade
Tax raised in the North East over the last decade
These patterns highlight the roles and linkages of different local authorities within city regions.
The data shows the increasing attractiveness of central urban areas for people to work, and spend their wages in shops and bars nearby (all of which generated tax receipts in the form of income tax, NICs and VAT). But while a high number of tax generating jobs, businesses and shops are located within one or two urban centres, we know that people who work and spend their money there live and consume public services more widely in the city region.
These linkages are the fundamental rationale for delivering policy such as transport and housing at combined authority level. They should also inform any proposals for further fiscal devolution – such as arrangements to pool and manage tax revenues across multiple authorities in a combined authority.
Louise McGough is a policy officer at the Centre for Cities. This article was first posted on the think tank’s blog.