Will tax cuts help the levelling up agenda?

The Government’s emergency budget is likely to overwhelmingly benefit people and businesses in London and the South East, rather than in the parts of the country the Government has committed to improve through levelling up.

Our new analysis shows that:

• Increasing employer and employee National Insurance contributions by 1.25% was set to cost London an extra 1.13% of gross disposable household income (GDHI) in taxes, and the South East would have contributed an extra 1.05%. Across the North of England, the figure was 0.92% of GDHI. Reversing the rise will therefore disproportionately benefit Londoners, equivalent to a £311 tax cut compared to £188 in the North East.
• Reversing the rise in corporation tax next April will save businesses in London an estimated £5.7 billion in total, equivalent to 1.2% of GDP, and £2.5bn in the South East (0.8% of GDP). This compares to just £355 million in the North East, or just 0.6% of GDP. This means that London’s businesses will benefit twice as much as those in the North East.
• The exception is the proposal to remove green levies from household bills.  From 2019-21, households in the North East spent twice as much of their household income on electricity and gas (3%) compared to Londoners (1.5%). So shifting green levies off bills and on to general taxation will be regionally progressive.

The Government needs to use the Autumn Statement, when the Chancellor will set out broader spending plans, to offset this impact and set out bold plans to invest in growth in all parts of the country.

Adam Hawksbee, Deputy Director and Head of Levelling Up at Onward and former Head of Policy to Mayor Andy Street, said: 

“Tax cuts definitely have a role in boosting growth, but their impact varies enormously and they typically benefit already prosperous places. 

“It’s vital that as the Government gets on with its pro-growth strategy that it does not inadvertently undermine the central promise of levelling up made to voters in 2019.”