Onward Bulletin 18/01/21
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Hello and welcome to Onward’s weekly summary of research, events and opinion. We hope you enjoy it. If you do, tell your friends or donate to support our work.
Onward activity
NEW RESEARCH: Yesterday morning we published Levelling Up the Tax System, a new report exploring the burden of different taxes on the UK's regions. It was a collaboration with the Levelling Up Taskforce, a group of 65 MPs in Parliament.
The report received widespread national coverage, including in the Daily Telegraph, Guardian, Independent, Daily Mail, and Yorkshire Post.
Alongside the launch, Selaine Saxby MP wrote for the Western Morning News and Robert Largan MP wrote for Conservative Home.
Separately, Fjolla Krasniqi, wrote for Reaction last week on why community must be at the centre of efforts to restore Britain’s left behind places and Ted Christie-Miller wrote for Business Green on the challenges of fuelling green transport.
STARTING SHORTLY: At 10.30 this morning, we will formally launch our report, The Policies of Belonging, published last week. Tune in to watch Lord O’Shaughnessy, Danny Kruger MP and Jon Cruddas MP debate the findings. Register here.
SAVE THE DATE: This Thursday, 21 January, we are officially launching our Getting to Zero research programme, with remarks from Rt Hon Kwasi Kwarteng MP, Secretary of State of Business, Energy and Industrial Strategy, Rt Hon Caroline Flint, Dame Caroline Spelman and Guy Newey. Register here.
ALUMNI NEWS: Eddie Hughes, former member of the Onward Advisory Board, has been appointed Parliamentary Under-Secretary of State at the Ministry of Housing, Communities and Local Government.
The Government’s core economic mantra - levelling up - is generally dominated by questions of spending. Advocates of reform, including Onward, have argued for more infrastructure and economic investment in less productive regions, to allow them to compete with regional cities in Europe and to enjoy some of the economic advantages that London enjoys. The UK remains one of the most geographically unbalanced economies in the industrialised world.
But there is another way we should think about levelling up - and one that doesn’t take the time that infrastructure does to translate into results and which should appeal to all pro-market conservatives: tax reform.
Because it is on tax, as well as investment, that London stands out. The capital contributes the most tax of any region: £162 billion in 2018/19, equivalent to £1 in every £5 of tax receipts accruing to the Exchequer. London also generates the largest fiscal surplus of any region - per head, London raises £4,350 per person more in revenue than it receives in total spending. And on big taxes like Income tax, VAT and especially corporation tax, London contributes more than any other region.
But not so fast. Relative to regional GDP, London actually contributes less in taxes than any other region of the UK. Tax receipts generated in London are equal to 33% of the region’s GDP, significantly lower than the North East (40%) or the South East (42%). There are many reasons for this, chief among which is commuting. Millions of people travel into the capital to work or do business, and therefore add to the size of its economy. But it complicates the narrative that London is a net generator of tax receipts.
London is unique in a number of other ways. When it comes to fuel duty, the capital pays very little compared to other regions like Wales or the East Midlands. Of course, Londoners drive less frequently because of the good public transport infrastructure and high population density. We see a similar pattern for alcohol duties. London pays less than every other region and has experienced the steepest fall in duties on alcohol over the last twenty years. This may be partly because drinking regularly is significantly more common among the white population, and London’s diversity contributes to the capital having the highest rate of teetotalism of any UK region (27%, compared to the national average of 20%).
What all this data shows, however, is that tax decisions have different effects in different places. This means that we must consider the impact of tax changes alongside efforts to level up, or risk trying to break down decades-old regional divergence with one hand tied behind our back.
For example if the Chancellor has a choice between cutting corporation tax further or increasing capital allowances underneath it, what should he do? The former disproportionately benefits London, with a third of the value accruing there, while the latter will benefit manufacturing areas in the North, the Midlands and Wales most. The biggest winners would be places like Warwickshire, Teesside, the West Midlands, Cumbria and Cheshire.
I am not arguing for one choice or the other - and there are lots of considerations to balance in the upcoming Budget. But as the Chancellor makes these decisions he cannot afford to ignore the regional dimension and should instead put it at the heart of his approach.
At every Budget, the Treasury publishes a ‘distributional analysis’ for households, to show how much more or less people in different income brackets will pay. This allows us to determine whether tax rises are borne by those most able to pay and whether tax cuts most benefit those on the lowest incomes. If he is serious about levelling up, the Chancellor should go one step further and publish a regional distributional analysis, to show how much more or less different regions are paying.
We need to think about how to use tax reform to get private sector growth going in struggling areas. The Chancellor must use everything in his policy toolbox, taxation as well as spending, to fix these long-standing disparities that have held our economy back for decades.
This article was first published in City AM on Monday 18 January 2021.
Policy bites
Right to Regenerate. Robert Jenrick has announced a consultation on plans to give communities the new right to take over unused council-owned buildings and land. This was one of our key recommendations in last week’s The Policies of Belonging and the Secretary of State acknowledged our contribution.
Vaccine update. In the next stage of the rollout, over 70s and the clinically vulnerable are now being offered the COVID vaccine. The UK is now outperforming all G7 countries and rollout is accelerating.
Quick links
Plugging the digital gap. Greg Noone urges Government to invest in digital skills or let people fall further behind. Link.
Is the UK “Europe’s No1 tech nation”? David Smith considers the UK’s R&D prowess. Link.
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