Tax data shows the north's city regions are increasingly dependent on their urban cores

The Chancellor's famous red box. Image: Getty.

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.

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The best way to make housing more affordable? Raise interest rates

Lol, no. Image: Getty.

Speaking to the Conservative Party conference in September 2017, the UK prime minister, Theresa May, gave a stark assessment of the UK housing market which made for depressing listening for many young people: “For many the chance of getting onto the housing ladder has become a distant dream”, she said.

Now a new report by the Institute of Fiscal Studies (IFS) provides further, clear evidence of this. The study finds that home ownership among 25 to 34-year-olds has declined sharply over the past 20 years. Home ownership rates have declined from 43 per cent at age 27 for someone born in the late 1970s, to just 25 per cent for someone aged 27 who was born in the late 1980s.

The most significant decline has been for middle-income young people, whose rate of home ownership has fallen from 65 per cent in 1995-6 to 27 per cent now – most significantly hitting aspirant buyers in London and the South-East.

Causes and consequences

The IFS study lays the blame for all this on the growing gap between house prices and incomes. Adjusting for inflation, house prices have risen 150 per cent in the 20 years to 2015-16, while real incomes for 25 to 34-year-olds have grown by 22 per cent (and almost all of that growth happened before the 2008 crash).

A bleak picture. Image: Institute for Fiscal Studies.

But, as the report acknowledges, the problem goes much deeper than this. Home ownership rates differ by region. Although there has been a decline in home ownership rates for young people across all areas of Great Britain, the decline is less significant in the North East and Cumbria as well as in Scotland and the South West. The biggest decline in ownership has been in the South-East, the North-West (excluding Cumbria) and London.

So a person aged 25 to 34 is more than twice as likely to own their own home in Cumbria, as their counterpart in London. Worse, young people from disadvantaged backgrounds are less likely to own their own homes – even after controlling for differences in education and earnings. Home ownership continues to reflect a deeper inequality of opportunity in our society.


More houses needed

Part of the problem is that both Labour and Conservative governments have seen housing as a single, stand-alone market and have focused their attention on what is happening to prices in London. But housing is a number of different markets, which have regional variations and different interactions between the owner-occupier, private rented and social rented sectors.

Regional variations in house prices for similar sized properties reflect the imbalances of the economy: it is heavily reliant on financial services, which are concentrated in London, while the public sector makes up a significant share of many local economies – particularly in the North. Migration from across the UK to overcrowded and expensive areas – such as London and the South-East – have put property prices in those areas even further out of reach for would-be buyers.

To make matters worse, both Labour and Conservative governments have routinely failed to build enough houses. While the current government’s aim to build 300,000 new properties a year by 2020 is welcome, it is simply not enough to meet the backlog in demand – let alone address the fundamental affordability problem.

Where homes are being built, they’re often the wrong types of homes, in the wrong places. Family homes are being built, despite there being some 4m under-occupied such properties across the country.

Not that long ago, government was reducing the housing stock in many parts of the North, through the disastrous Housing Market Renewal programme. Houses are currently being sold in smaller cities such as Liverpool and Stoke-on-Trent for just £1. And none of the government’s actions suggest that ministers understand these issues, or are prepared to address them.

House price inflation – and the awful affect it is having on home ownership rates for young people – is part of a wider problem of the global asset bubble. This bubble has seen huge increases in the price of assets – stocks, housing, bonds – in high income countries such as the UK. Successive governments have helped to fuel this through quantitative easing, ultra-cheap money and successive raids on pension funds.

The ConversationWhat’s needed to address this asset bubble is a substantive increase in interest rates. But while this may slow the growth in house prices, the sad truth is it will do nothing to make housing more affordable for most young people.

Chris O'Leary, Deputy Director, Policy Evaluation and Research Unit and Senior Lecturer, Manchester Metropolitan University.

This article was originally published on The Conversation. Read the original article.