William Eichler 18 January 2021

Government should use tax system to ‘level up’, think tank says

Government should use tax system to ‘level up’, think tank says  image

Government’s ‘levelling up’ agenda must use the tax system to spread opportunity and growth to less prosperous places, think tank says.

The think tank Onward argues that many taxes are regionally regressive and are borne mostly by less affluent regions. These include taxes such as council tax, some green levies, tobacco and alcohol duty, and VAT.

In a new report, Levelling up the tax system, it reports that the average council tax per head in London is the lowest in England (£481), despite house prices being much higher in the capital than elsewhere.

Per capita council taxes in London are a fifth lower than in much poorer regions such as the East of England (£593) and South West (£620), according to the think tank.

Council tax as a share of disposable income (GDHI) in London (1.64%) is the lowest in the UK, and just over half that of Yorkshire and the Humber (3.06%) and the North East (2.91%).

Onward argues that reforming council tax could disproportionately benefit poorer regions. Cutting Band A council tax, from 6/9 of Band D to 5/9, for example, would save 54% of households in the North East an average of £147 a year, compared to a saving of £125 for just 4% of households in London.

By contrast, increasing Bands F-H would increase tax for 15% of households in London and the South East but just 3% in the North East.

‘As the Chancellor starts to prepare his next Budget, I hope this report will help reshape the debate on tax policy,’ said Robert Largan MP, committee member for the Levelling Up Taskforce.

‘If we’re going to successfully level up the whole country, we need to make sure that the regional impact of tax decisions are carefully considered.”

‘While rebalancing spending on the things that do the most for growth to help neglected places is very welcome, using the tax system is potentially a good way to complement things like new infrastructure investments, and tax changes can potentially have faster effects.’

Will Tanner, director of Onward, commented: ‘Levelling up is often associated with new infrastructure or extra funding for skills and research. These are very important but will take time to have an impact. There is another tool available to ministers that can deliver immediate results and which should appeal to pro-market conservatives – the tax system.

‘If we don’t use the tax system as well as spending we’ll be trying to level up with one hand tied behind our back. If levelling up is to succeed, we need to use the tax system to drive regional growth too.’

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