Robert Largan: Cutting Council Tax would do more to level up than cutting Corporation Tax

Conservative Home

At the last election, in northern constituencies like mine, many people voted Conservative for the first time. They did so for three main reasons: to “get Brexit done”; to stop Jeremy Corbyn becoming Prime Minister; and because they wanted to see their area “levelled up”.

We’ve left the EU with a deal and Corbyn has been consigned to the dustbin of history. In 2024, voters will judge this Government on its successes and failures in levelling up.

So far, the debate on levelling up has focused on spending, particularly on infrastructure and understandably so. There is a desperate need to invest in infrastructure in places like the High Peak, whether that be our roads and railways or our schools and hospitals or even our digital infrastructure. But this spending is only part of the levelling up equation. We also need to look seriously at how our tax system works and whether the burden is spread fairly across the whole country.

That is why the Levelling Up Taskforce along with the think tank Onward have published a new report on Levelling up the tax system.

The report takes a new approach, analysing the impact of different taxes on different parts of the country. For example, taxes such as council tax and VAT fall the hardest on the most deprived regions, while average council tax per head in London is lower than anywhere else in England, despite house prices being much higher.

We often hear about how London generates £1 in every £5 of tax receipts. But this ignores the fact that London generates less tax than any other region as a share of their GDP, partly because it benefits from much higher levels of commuters than other places. If we’re serious about levelling up, we need to reassess this situation.

The report considers which tax changes might have the biggest impact on helping people in the most deprived parts of the country as we recover from a global pandemic.

Because there are lots more Band A properties in poorer regions, cutting Band A council tax by a ninth would save 54 per cent of households in the North East an average of £147 a year, 43 per cent of households in Yorkshire an average of 146 per year, and 41 per cent of households in the North West an average of 148 per year. This would put more money in people’s pockets quickly.

While another reduction in corporation tax would benefit London most, an increase to capital allowances for plant and machinery or industrial buildings would be of far greater benefit to the North, Midlands and Wales where there are far more manufacturing businesses. Such a change would lead to large savings for businesses in places like Cheshire, Derbyshire, the West Midlands, Teesside, East Yorkshire, Northern Lincolnshire and Cumbria where capital spending is highest.

I’m not seeking to write the Chancellor’s budget for him but I hope that this report can open up a new dimension in the levelling up debate and help inform how we make tax and spending decisions in future. At the very least, the regional impact of different tax measures should be a standard part of Treasury analysis.

We won’t be able to level up the whole country if the Government has one of its hands tied behind its back. The full fiscal firepower of the Treasury is needed if we are going to give real change for parts of the country that have been neglected by Westminster for far too long.

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REPORT
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